Elevated inflation is looking a lot less transitory, and might actually accelerate. That’s what the average business expects, according to the Canadian Federation Of Independent Business (CFIB) Business Barometer in September. The regular survey found Small and medium sized businesses expect costs to soar. Since higher business costs are passed to consumers, this may mean we’re just getting started with higher inflation.
Canadian Businesses Have Near Record Expectations For Rising Prices
Small and medium sized businesses expect prices to go much higher in the next year. The average expectation for price growth over the next 12 months is 3.6% as of September. This is 0.1 points higher than the month before, which was a record for the index, which goes back over a decade. Prior to last year, these expectations stayed within the range of one to two percent.
Canadian Business Price and Wage Growth Expectations
The average expectation for price and wage growth over the next 12-months, for small and medium sized businesses.
Source: CFIB; Better Dwelling.
Canadian Businesses See Wages Rising Faster Than Usual
Businesses are also expecting wages to make a sharp climb, which can push costs further. The average expectation for wage growth in the next 12 months reached 2.7% in September. This is a 0.3 point climb from the previous month, and the highest it has been since February 2018.
The difference between the growth in 2018 and the growth now are very different though. Back then, the economy was booming and businesses were seeing cash flow roll in. Currently businesses are still at reduced capacity, and spending hasn’t quite recovered. Yet they’re also facing escalating costs, and see them rising even further.
Rising costs in a recessionary environment are a dangerous combination. Businesses are forced to roll the costs into margins (if possible), or pass them onto consumers. When prices rise faster than incomes, the additional money is diverted from other areas. Ultimately this leads to a slowdown in activity, and a potential “double dip” recession.
The risky combination of factors are more of an emergency than most realize. The chief economist at National Bank of Canada recently warned a 1970s-style stagflation scenario is beginning to form. If left unchecked, life can become really uncomfortable, really fast. The ability to pull an economy out of such a scenario is also much more difficult than avoiding it now.
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Expectations are also why the Bank of Canada keeps saying “transitory” even though they damn well know that’s not the case.
No one would believe that if they heard him say it. You can tell from the hesitance not even he believes what he’s saying.
Has anyone else noticed a rise in audits and secondary CRA inquiries? It seems like all of my clients (and associates with their clients) are seeing a greater amount of documentation requested for their prior tax years?
Seems like an awfully predatory move by the government to collect not all that much money (if any) and place a higher audit burden on their costs, but their goal has always been to kill mom & pop biz by policy so the billionaire run donors can steal the business.
I would’ve be surprised, since they need to “recoup” their spending. They’ll pay double to their friends to fulfill an untendered contract, but they want every small business to pony up extra fees to make sure they could deduct that bagel the expenses when it can be argued they would have are that day anyway, so it’s compensation. Yes, I’ve seen such petty audits before.
I’m actually surprised it’s so low tbh.
If the heads of bank of canada want to instill public confidence in their belief that inflation is transitory, they should publicly commit to accepting no more than 1.5% annual pay increases for the next 4 years.
Pick your poison: higher interest rates to kill the inflation and your wage stays the same OR you get a higher wage and interest rates stay low but inflation will eat away the increase. It is a loose loose outcome for most people. Monetary policy does not create economic growth (ie net savings).
Labour creates wealth and Canadians are increasingly acting like the ilk of the third world, creating nothing of value.
Lose. Lose.