Ottawa — The economy may be taking tentative steps toward recovery, but Canadian companies are still stuck with recession prices.
Inflation numbers released on Wednesday showed that upward pressure on prices weakened further last month, with the consumer price index falling 0.9 per cent in July from a year earlier. Prices fell 0.3 per cent last month from June, Statistics Canada reported. Declines in the price of gas, cars and shelter were partly offset by higher food costs.
The numbers highlight the sluggish nature of the economic recovery that is now taking hold in Canada and around the world. Companies across a wide swath of sectors say they just can't jack up prices yet with only hints of a business turnaround in the air.
For policy makers and consumers, that means inflation is not likely to be rekindled any time soon. But companies will continue to face downward pressure on their profit margins.
“In the electronics industry, the shipments and booking are still off significantly year over year, so it would be very cavalier to try to raise prices in this kind of environment,” said Paul Langston, chief executive officer of Toronto printed circuit board maker Coretec Inc.
“It is way too early to think about that,” Mr. Langston said.
With no price hikes possible, companies such as Coretec are feeling the squeeze because some of their input prices have risen sharply.
The copper, gold, silver and tin that go into printed circuits now cost more “but it is absolutely impossible for us to pass those price increases along,” and that is not likely to change in the near future, Mr. Langston said.
It could take at least two years of recovery to absorb the slack in the economy, some economists say, and until that happens, companies won't feel free to pass on higher costs.
“In response to the stronger demand, manufacturers and retailers will [eventually] regain pricing power,” said Sal Guatieri, a senior economist at BMO Nesbitt Burns. “But that's a story for late next year, or most likely well into 2011.”
The picture is the same in the restaurant business, said Neil Maclean, chief financial officer at Keg Royalties Income Fund in Richmond, B.C., which operates and franchises Keg restaurants across Canada.
Until there is some sign of “increasing guest counts” in the restaurants – and that has not happened yet – there's no way the company can think of increasing menu prices, Mr. Maclean said.
“We're just staying with what we've got for the time being.”
Most other companies in the casual-dining segment are in the same boat, he said. “I don't think anybody is looking at pricing [increases] at the moment.”
Even in the oil patch, where a barrel of oil is now worth more than twice what it was eight months ago, there's no whiff of a return of pricing power at companies that service the sector.
“What we've seen in our industry right now is prices stabilizing, simply because we can't go any lower,” said David Ross, chief financial officer of Bonnett's Energy Services Trust, an oil field services company based in Grande Prairie, Alta.
While the volume of business has stopped falling, there's no sign of a pending rise in demand, Mr. Ross said, and consequently there'll be no consideration of price increases at least until the fourth quarter.
Globally, the picture is the same, Mr. Guatieri said.
“There is even more massive slack in the U.S. economy, and in Japan's economy. [There is] just no pricing power anywhere.”
Mr. Guatieri pointed out that, in past recessions, the core inflation rate – which doesn't include volatile components such as energy and food – dropped as each recovery took hold.
This time, core inflation has not yet fallen much, suggesting that significant price increases are still a long way down the road.
