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., a Quebec-based franchisor of roughly 7,000 restaurant locations under dozens of brands. 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.
MTY, whose restaurants such as Mr. Sub and Pizza Delight are often found in malls, “had to increase [its] prices pretty much across the board, especially in the last two or three months,” chief executive officer Eric Lefebvre said on an April 9 earnings call. He pointed to higher costs of packaging, protein and cooking oil. “The inflation has been quite abrupt.”
Chicago-based Conagra, whose brands include Duncan Hines cake mix, was hit by 3.9-per-cent inflation in its most recent quarter, with the company opting to raise prices. “We expect the rate of inflation to continue to accelerate over the next few quarters,” chief financial officer David Marberger told analysts earlier this month.
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 per cent in March, in part reflecting the relatively low base in March, 2020, when the pandemic initially hit. (In February, annual inflation was 1.1 per cent.)
Still, there are areas where prices have firmly jumped. Fresh fruit was up 8.5 per cent from a year ago, furniture by 5.8 per cent and household appliances by 5.6 per cent.
Perhaps the most extreme example is rental vehicles, which surged by 22 per cent. 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 per cent 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. Montreal’s Gildan Activewear Inc. said it could pass costs onto consumers if the situation persists.
“If cotton remains at these types of levels, we’ll see pricing go up as we move into 2022,” CEO Glenn Chamandy told an earnings call in February.
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-per-cent 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.
The Globe and Mail, April 28, 2021