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Companies are a lot more willing to raise prices now — and it’s making inflation worse

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Corporations are a lot more willing than usual to raise their prices lately, and it’s putting more of the burden of high inflation on consumers.

That may not come as much of a surprise to anyone who has browsed a grocery aisle, kicked the tires at a car dealership or filled up a gas tank of late, but even the Bank of Canada is starting to take notice of the trend, as the central bank continues its battle to wrestle inflation into submission.

Speaking to a parliamentary committee in Ottawa this week, the bank’s governor, Tiff Macklem, told lawmakers that the bank has noticed a troubling new trend coming out of the corporate sector.

For much of the past few decades, any time businesses have seen a jump in their input costs — the amount they pay for things like raw materials, energy and even workers — “they were pretty cautious about passing on [that cost into] the prices they charged for goods and services,” Macklem said.

Their reasoning was simple: they were afraid of losing customers.

Companies more willing to raise prices lately, says Bank of Canada governor

 

Featured VideoLast week, Bank of Canada head Tiff Macklem says companies are typically reluctant to raise their prices for fear of losing customers, but high inflation has made them much more willing to do so lately, without worrying that consumers will tap out.

But in this bout of high inflation, the bank has noticed that corporations aren’t nearly as worried about doing that as they typically are.

“When input prices have gone up … those are getting passed through much more quickly to final goods prices. So households are bearing the full inflationary impact much more: that’s what we can see pretty clearly in the data.”

When asked how much of Canada’s current inflationary problem can be blamed on price hikes above and beyond companies’ cost increases, Macklem said, “I don’t think we can put a number on it,” but other central bankers have been far more willing.

In a speech this summer, Christine Lagarde cited data from the European Central Bank she leads showing that for the 20 years leading up to 2022, corporate profits were responsible for about one-third of inflation.

Last year, however, that ratio jumped to two-thirds, which means that despite legitimate increases in their cost of doing business, their take-home share of every consumer dollar effectively doubled.

“Firms cannot continue to display the pricing behaviour we have recently seen,” she said.

‘Profit-led inflation’

Paul Donovan, a London-based economist with Swiss bank UBS, says the scenario described above is what’s known as “profit-led inflation” and he’s been waving red flags about it for most of the past year.

While it has exposed itself to varying degrees in various places around the world, the one condition it requires is a strong narrative: consumers have to believe en masse that price increases are justified, or they won’t accept them.

“Profit-led inflation works until it does not and the point where consumers start to rebel against profit-led price increases disguised as other factors tends to be a tipping point with a sharp turn,” he told CBC News in an email.

While he stresses he isn’t familiar with the situation in Canada, he says in Europe there is ample evidence to show that consumers have reached that tipping point of saying “enough’s enough” and the best place to observe that is very familiar to Canadians: in the grocery aisle.

How these Canadians are dealing with the high cost of living

 

Featured VideoCBC News spoke to several people in downtown Toronto about the financial challenges they’re contending with, including housing, food and child care, and what they’re doing to keep expenses down.

Last month, the British Retail Consortium noted that “fierce competition between retailers” caused U.K. food prices to decline on a monthly basis for the first time since 2021. Donovan says that’s no accident, as the major chains have started offering deep discounts to their most loyal customers after the latter group started to abandon them

“In the past few months there have been aggressive price discounts — but which apply to people who hold loyalty cards,” he said. “Consumers in the U.K. have shown themselves less willing to believe the narrative of why prices were rising, and supermarkets are eager not to alienate customers and so seek to shore up loyalty through the privileged discount scheme.”

Data from the U.S. shows evidence that price increases may have gotten ahead of themselves, too. A report by the Federal Reserve Bank of Kansas City calculated that markups increased by 3.4 per cent in the U.S. in 2021 — enough to make them responsible for as much as half the increase in the U.S. inflation rate that year.

Jim Stanford, an economist and director at the Centre for Future Work, says its refreshing to see central bankers start to acknowledge that corporate profits have played a disproportionate role in inflation, because for too long Canada’s economic discourse has been trying to put the blame on anything but that.

Burden rests on consumers

“Tiff Macklem has been talking about so-called overheated labour markets nonstop for the last two years,” he told CBC News in an interview. “And now I think they’re they’re finally recognizing that is not the story — or certainly not the whole story.”

Advice for consumers for much of the past year has boiled down to either trying to cut back on expenses, or increasing income, but Stanford says it’s misleading to put the onus on consumers to solve inflation, since they’re the ones bearing the disproportionate burden of it.

“There is evidence that consumers are getting tapped out,” he said, noting that grocery store sales and overall retail sales are now declining in volume terms for the past three months at least.

“I’m reluctant to say that consumers just need to get better at shopping around. I’ve heard that advice from a dozen people [but] I think it’s unreasonable to expect that somehow consumers have to solve the problem by becoming bargain hunters and spending half their week looking at grocery store leaflets.”

He cites data from Statistics Canada showing that at one point last year, the cost of a unit of labour had increased by a little more than 10 per cent since the start of the pandemic. The per-unit profit, meanwhile, was up by more than 70 per cent over that same time frame.

But the good news, Stanford says, is that trend is starting to reverse.

“The last two quarters in Canada have seen a partial but significant return of profitability back toward normal levels,” he said.

“This actually reinforces the story that profits had a lot to do with that outburst of post-pandemic inflation because on the way up, profits and prices went closely together and on the way down they’re coming down together as well.”

 

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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November 8, 2024

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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November 7, 2024

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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November 7, 2024

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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