Three-quarters of Canadian small and medium-sized enterprises (SMEs) say they’re feeling the pinch from rising costs. Nearly as many, 71 per cent, expect this trend to continue.
That’s among the findings of a new report from the Business Development Bank of Canada (BDC) released on Monday, ahead of the Bank of Canada’s (BoC) next interest rate decision, set for Oct. 23.
Last month, Canada’s central bank delivered a third consecutive cut to its policy rate as part of its continued efforts to tamp down inflation in the wake of the COVID-19 pandemic. Those cuts helped the consumer price index (CPI) reading for August slow to an annual rate within the BoC’s one-to-three per cent target range for the first time since 2021. In September, CPI fell to 1.6 per cent.
“Slower inflation should lower the speed at which input costs rise for businesses, but it will also make it more challenging for companies to increase their prices,” BDC economists Carine Bergevin-Chammah and Mathieu Galliot wrote in the report.
According to the BoC, consumers are expecting prices to rise at a slower pace than last year (four per cent vs. five per cent), meaning businesses will have less room to increase their prices without consequences.
Meanwhile, Statistics Canada’s industrial product price index shows prices for factories surged 35 per cent between 2020 and 2022, and have eased only slightly since then.
“While some input prices have and will come down, the price of energy will likely remain elevated as extreme weather events affect electricity output, increased electricity demand continues to wait for new investments, and geopolitical situations maintain gas prices above the pre-pandemic average,” Bergevin-Chammah and Galliot wrote.
BDC says it surveyed 1,278 business owners and business decision-makers online between June 7 and June 18. The results were weighted by region and number of employees.
Businesses also face challenges from rising labour costs, according to BDC’s report, with 88 per cent expecting similar or greater difficulties in the next five years. At the same time, it warns higher costs of living and rising debt loads are changing consumer preferences.
BDC says investments in technology, including artificial intelligence, will help improve efficiency and ease price pressures on SMEs.
“Investment in advanced technology is expected to continue, but there is a rising disparity between small and large businesses,” the economists wrote. “There is currently a 43 per cent gap in advanced technology adoption between large and micro businesses. This gap will increase to 48 per cent by 2029.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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