With supply-chain glitches worldwide causing product shortages, and price hikes for food and consumer goods, Canadian inflation hit a three-decade high in December, Statistics Canada said today.
Canada's Consumer Price Index (CPI) rose 4.8% December, compared to the same month in 2021 – the highest since 1991.
The rise comes as economists across North America in recent months have debated whether inflation is transitory and caused by temporary supply chain disruption or whether it is here for the long term.
The consensus seems to be that there is no one-size-fits-all inflation gauge for the retail sector because it comprises a wide range of items.
Food is a category of particular concern because it consumes about 16.4% of the average household budget, according to Statistics Canada data from 2019.
Canada’s Food Price Report 2022, produced by the University of British Columbia (UBC) and three other Canadian universities, projects that Canadian food prices will increase an average of between 5% and 7% this year. That is the highest predicted increase in the 12 years that university researchers have produced the annual report.
Some academics told BIV they are skeptical about reports projecting massive price inflation.
“Why pull the alarm bell?” asked UBC professor James Vercammen. “There’s no real evidence of long-term price inflation, and when I look back over the years of various disruptions, we seem to always come through it better than expected.
Retail Council of Canada CEO Diane Brisebois told BIV that retail inflation stems from a confluence of factors, including COVID-19 shutdowns at factories, restrictions on retail stores during the pandemic and climate change.
"A lot of factories around the world have been facing labor shortages, or lockdowns, so that obviously slows down the production of goods," she said. "If you look at climate, it has had a huge impact on farmers and crops. So that impacts input."
Brisebois lamented how things have changed, compared with early fall 2021, when it seemed promising that retailers could soon get operations back to normal. Then the Omicron variant started spreading, spurring new lockdowns and supply chain disruptions.
Around that time, B.C. executives let loose with a steady stream of warnings about risks to their supply chains.
“We certainly are experiencing, and hearing a lot about, labour shortages,” A&W Food Services of Canada CEO Susan Senecal told an investor conference call in October.
That same month, Aritzia CEO Brian Hill told investors that his company was struggling to get products to stores.
“We see these shortages continuing,” he said. “The shortages are twofold. They’re, one, because we have factory disruptions through the effects of COVID-19 in some of these countries that we’re dealing with … and then, the second thing is the freight times, and shipping times, are exponentially longer than they were. So, it’s a double whammy.”
Hill said Aritzia needs to spend more money to build stores, to make products and to ship products than it did previously.
“It’s costing more money to hire people, and get them on our teams,” he said. “It’s costing more everywhere we look.”
Over at Lululemon Athletica Inc. (Nasdaq:LULU), CEO Calvin McDonald in December told investors a similar tale of supply-chain woes.
He then, on January 10, added that the Omicron variant had hit Lululemon's sales by causing staff to be sick and for stores to operate at reduced capacity and reduced hours in some locations. He added that these phenomena are likely to cause Lululemon to report fourth quarter sales and profit at the low end of previous guidance.
Retail analyst and DIG360 owner David Gray expects supply chain glitches to continue through 2022.
He told BIV that Bank of Canada interest-rate hikes could be a wild card that buffets some retailers even harder than expected.
“This would be a game changer in terms of disposable income and consumer confidence, after so many years of exceptionally low rates. Think of all the young adults who have not experienced true inflation.” •