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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