[The Epoch Times, November 06, 2023](The Epoch Times reporter Wang Lan reported in Toronto) The Bank of Canada recently admitted that merchants’ increases in prices have brought more burdens of high inflation to consumers. However, experts said that the trend of rising prices is being reversed. .
Bank of Canada Governor Tiff Macklem told a parliamentary committee in Ottawa this week that the central bank has noticed a worrying new trend in the corporate sector.
“Over the past few decades, whenever companies’ input costs – what they pay for things like raw materials, energy or even workers – have spiked, they have been very cautious about passing the costs on to the prices of goods and services,” he said. The reason is simple: fear of losing customers.
But in this round of high inflation, the central bank has noticed that businesses are not as cautious as they used to be.
“When cost prices rise, those prices are passed on to final product prices more quickly. So the impact of inflation on households is much greater, and that’s what we see clearly in the data,” McCallum said.
Asked how much of Canada’s current inflation problems can be attributed to rising prices beyond rising costs for companies, McCollum said: “I can’t give a clear number.”
There is a critical point in consumer affordability
Central bank governors in other countries have clear data. European Central Bank President Christine Lagarde said that corporate profits will account for about two-thirds of inflation in 2022. “The corporate pricing behavior we have seen recently cannot continue,” Lagarde said.
Paul Donovan, an economist at Swiss bank UBS in London, said the situation is called “profit-led inflation.”
“When consumers begin to rebel against profit-led price increases disguised as other factors, that is often the tipping point for a sharp decline,” he said.
While he emphasized that he was not familiar with the situation in Canada, there is ample evidence in Europe that consumers reach a breaking point, and the best place to observe this is in supermarket prices.
Last month, the British Retail Consortium noted that “intense competition among retailers” had led to the first monthly fall in UK food prices since 2021. Donovan says this is no accident, as major chains have begun offering deep discounts on their best-selling items.
He said. “British consumers have shown a reluctance to believe claims about the reasons for price increases, with supermarkets keen not to alienate customers and therefore looking to boost loyalty through discount schemes.”
The rising price trend is reversing
Economist Jim Stanford is director of the Center for Future Work. He told CBC News that central bankers are starting to acknowledge that corporate profits play a disproportionate role in inflation, which is surprising because central banks have long tried to place blame elsewhere.
“We’ve been talking nonstop for the past two years about the so-called overheating of the labor market, and now I think they’re finally realizing that’s not the truth, at least not the whole truth,” Stanford said.
For much of the past year, advice to consumers has boiled down to either trying to cut spending or raise income, but Stanford said it is misleading to blame consumers for tackling inflation because they are suffering economic burden. “There is evidence that consumers are spending all their income,” he said, noting that grocery store sales and overall retail volumes have been declining for at least the past three months.
The good news, Stanford said, is that this trend of rising prices is starting to reverse.
“Over the past two quarters, profitability in Canada has returned significantly to normal levels. When prices rise, profits rise with prices, and when prices fall, profits and prices fall with them,” he said.
Editor in charge: Yan Feng