Canadian Businesses Expect The Price of Goods To Rise Almost 5%: BMO

You’re not alone if you aren’t buying the “inflation is transitory” narrative. BMO Capital Market senior economist Robert Kavcic unpacked price change sentiment data. Small business owners see the cost of goods rising a lot over the next year. In fact, prices are expected to rise the most in at least a decade, by a wide margin. It also just so happens this sentiment data has a solid correlation with what you’ll pay later.

Businesses Are Being Squeezed On Margins

The reopening of the economy all of a sudden is causing a large squeeze. Small businesses are facing a perfect storm of higher input costs, and a labor shortage. Reduced industrial capacity and stimulus-driven demand are driving costs higher. Now a labor shortage is adding more expense, as businesses compete in a re-hiring boom.

These costs need to either be absorbed, or prices need to rise to accommodate them. Since small firms already struggle to compete by price alone, they’re forced to pass the costs on. And they foresee they’ll have to pass on some pretty hefty ones it would appear. 

Businesses Expect The Biggest Price Hike Ever

BMO notes the expectation of price growth reached the highest level on record. On average, prices are forecast to rise almost 5% over the next year. Nothing even comes close to that kind of gain in over a decade of data. “In fact, more than a third of firms are looking at price increases in excess of 6%,” said Kavcic. 

Business Sentiment On Price Growth Has A Solid Correlation

These aren’t just the rants of random fools on inflation. These are people close to the cost of goods before consumers get them. When they see costs rising, it usually trickles down to end consumers.

“Importantly, there is a solid correlation between what businesses say, and what they actually do,” he said. Adding, “Note that the Bank of Canada’s CPI common-component measure correlates well, with a 12-month lag. It’s clear where the near-term inflation risks still reside…”

So inflation is transitory… but probably not. 

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  • Bkl 3 years ago

    We all know with all the money printed around the world there will be inflation. Housing is not going to deflate anytime soon. Extreme bubbles like Toronto and Vancouver will probably pop but not other under valued cities.

    • DDD 3 years ago

      Not how it works. Once Feds in the US going to increase interest rate, game changes.

    • DDD 3 years ago

      Also, there are a lot of means to absorb money when needed.

    • Doomcouver 3 years ago

      There’s no such thing as a one-way bet. You shouldn’t claim to know the future. With this much price acceleration in all cities, a widespread price pull-back is definitely a real feasible possibility.

    • D 3 years ago

      And what happens before the pop and after now? $20 million average home price in 2 years? Get real. The bubble has been ongoing for years now and needs to be popped. Rich foreigners and hedge funds are the only people buying Canadian homes, plus gullible people. Ban foreigners from buying a home unless they live and work in Canada. Ban hedge funds, wealth funds, pension funds from buying Canadian homes. Send all government officials to jail. That’s how you solve the problem.

      • expat 3 years ago

        The problem if you ban foreign property acquisition is you suddenly expose a hollow economy… no government is going to do that with an election always on some horizon.

  • Lamar 3 years ago

    Housing isn’t a bubble. Every Canadian isn’t supposed to be able buy a house – that isn’t how it works. I bought 3 new houses during COVID… I am up minimum 10% on each one… I could easily cash out refi and buy another one or two… so is this a bubble? Not for me lol… its a gold mine. I’d advise you to buy the first home you can win a bid on, don;t worry about location, don’t worry about price, just BUY!!!!! trust me

    • DDD 3 years ago

      I bought different types of stocks when it crashed during covid and my stock portfolio made 62% gain in approximately one year. However if you start buying stocks now you might loose, same with real estate. opportunity is gone by now. Its sellers market.

    • expat 3 years ago

      Yes, it is literally a sign of a bubble. Good luck.

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