Small businesses expect to increase prices by an average of 2.5 per cent over the next 12 months, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer. This indicator dropped from the 2.8 per cent reading in May and is below the upper band of the Bank of Canada’s target range for inflation of 3 per cent.
Small businesses also plan to increase wages by an average of 2.5 per cent in the next 12 months, compared to 2.8 per cent in May.
The path for both the price and wage plans indicators in the last two months suggest the uptick recorded back in April may have been a temporary blip only.
“Both plans are moderating, suggesting that inflation is on the right track. However, prices remain elevated and nowhere near their 2019 levels,” said Simon Gaudreault, chief economist and vice-president of research at CFIB. “Other survey indicators and comments from our members tell us that business conditions remain brutal, and the pressure is still very much there for a sizeable share of firms. Moreover, we have had only one interest rate cut so far, so it will take a long time before we experience significantly improved borrowing costs and overall demand as a result of the Bank of Canada’s loosening monetary policy.”
Various sky-high costs, such as insurance, occupancy and borrowing, were causing challenges in June for businesses. Notably, borrowing and occupancy costs are a concern for twice as many firms now as before the pandemic, the CFIB said in a news release.
Lack of demand remains the top limitation for nearly half of businesses, preventing them from expanding their sales or production. Also of note is the 46 per cent of businesses reporting limitations due to skilled labour shortages, which is a full 10 percentage points above the historical average for this indicator.
The small business 12-month confidence index remained roughly stable, shaving off 0.3 index points to 56.3 in June. The index is still below its historical average of 60.
“On one hand, more small businesses have recently reported feeling optimistic over the long term,” said Andreea Bourgeois, Director of Economics at CFIB. ” Most sectors and provinces also saw small improvements in long-term optimism this month. On the other hand, we need to keep in mind that the situation for many businesses is far from rosy, and many are still hanging on by a thread.”