An increasing number of companies are passing along higher input costs to consumers, a sign of inflationary pressure as the economy recovers from the pandemic. In recent weeks, several publicly listed companies have said they’re raising prices, including Procter & Gamble Co., Conagra Brands Inc. and MTY Food Group Inc.. Several others have broached the possibility on their earning calls.

In justifying the moves, executives say their input costs have risen sharply, owing in large part to a commodity boom that’s rippled through a wide range of markets, such as lumber, copper and soybeans. Further, a semi-conductor shortage and congested shipping routes have factored into supply-chain disruptions, adding to costs.

And those issues won’t ease soon, according to the executives. That should add upward pressure to prices, just as Canadian households are set to spend their pandemic savings as the economy reopens. Put another way, consumers can expect a variety of products – everything from fast food to dishwashers, used cars to diapers – to come with steeper price tags.

Given higher costs, several analysts have asked Dollarama Inc. about introducing price points of $4.50 and $5 to its stores. “We’re not ready yet,” said Michael Ross, adviser and former CFO, on March 31. He said, however, that inflation played a role in higher price points being introduced in 2016. “It’s going to happen [again], and we’ll do it when we’re ready.”

Over all, inflation is fairly muted. The 12-month change in the consumer price index was 2.2% in March, in part reflecting the relatively low base in March, 2020, when the pandemic initially hit. (In February, annual inflation was 1.1%.) Still, there are areas where prices have firmly jumped. Fresh fruit was up 8.5% from a year ago, furniture by 5.8% and household appliances by 5.6%.

Perhaps the most extreme example is rental vehicles, which surged by 22%. When travel collapsed last year, rental-vehicle companies moved to sell off their cars. Meanwhile, a global shortage of chips used in cars and electronics has weighed on auto production, making it difficult – and pricey – to rent vehicles from firms that are now struggling to restore their fleets.

At the same time, some things are much cheaper. With so many people working from home, retail sales of apparel have suffered greatly, and clothing prices are down 7.3% from a year ago. But that could prove fleeting. Cotton prices have risen sharply, owing to sizable demand from mills around the world, along with poor growing conditions in parts of the United States, the largest exporter. 

Deliveries are another source of inflation. U.S.-based restaurant chain Chipotle Mexican Grill Inc. has twice raised prices on its delivery menu over the past year. And like many others, MTY has raised prices for orders placed on delivery apps, such as Uber Eats, to account for costs imposed by those parties. “It’s mostly up to the franchisees to decide what the price difference is going to be for their stores,” Mr. Lefebvre told analysts. “We try to talk to our franchisees that a 15% price difference is reasonable, but some of them will go lower than that because we want to be more attractive to customers.”

For a time, Canadians may be able to stomach higher prices. Households are sitting on a record pile of excess cash – more than $200-billion and counting – owing partly to limits on where they can spend.

Source: Globe and Mail