(Montreal) Grocers would not have taken advantage of the inflationary context to further increase their profit margins at the expense of their customers, according to research carried out by the Bank of Canada.
This is the conclusion shared by Nicolas Vincent, deputy non-executive governor of the Bank of Canada, during a presentation on Tuesday before the Chamber of Commerce of Metropolitan Montreal. The economist gave his first public speech on corporate pricing, an area he studied as a researcher.
Supporting graph, Mr. Vincent showed that the increase in prices in grocery stores followed the increase in the price of inputs paid by them. “Prices have increased at about the same rate as costs in recent years, including when inflation was high. Based on this analysis, cost increases were therefore fully passed on to prices. »
Mr. Vincent presented this conclusion as the Trudeau government recently issued an ultimatum to grocers to find ways to stabilize prices. Ottawa has given until Thanksgiving for the big five grocers to present a plan in this regard.
If the federal government judges the roadmap provided by each major retailer to be insufficient, it threatens to intervene, notably with tax measures.
Food inflation remained persistent, despite the lull in other categories. In August, food prices rose 6.9%, on an annual basis, compared to a pace of 8.5% in July, according to Statistics Canada data.
While the conclusion may vary from one sector to another, the Bank of Canada estimates that Canadian businesses did not take advantage of inflation to increase their profit margins, but that they passed on the increase in costs of their inputs to consumers.
“Price increases have closely followed cost increases. That said, even if profit margins have not increased, it is consumers who end up picking up the bill,” admitted Mr. Vincent.
The multiplication of price increases adopted by businesses took the Bank of Canada by surprise, while their high frequency did not correspond to its traditional economic models.
“Prices have a certain “rigidity,” explains the economist. That is, most companies do not adjust them every time there is a change in their costs, demand or competition. »
However, this rigidity has softened in a volatile context while companies have increased their prices more substantially and frequently. “The main models used by central banks are not designed to take into account changes in business practices. »
The trend is improving, but Mr. Vincent acknowledges that “progress remains limited.” “Still, companies are talking to us less about overheating demand and seem to be starting to pay close attention to competitors’ prices again. »
Questioned by the President and CEO of the Chamber, Michel Leblanc, on the relevance of easing monetary policy to avoid a recession, Mr. Vincent defended the Bank of Canada’s target, which is to bring inflation back at 2%. The target has “served the population very well” and the central bank “is determined” to bring it down to 2%, he said.
“Now we have a range of 1% to 3%, so why not stop at 3%, basically? Because if we stop at 3%, the next inflationary shock, it takes us to 4%, it takes us to 5%. After that, we could ask ourselves: “do we stop at 4%?”, and after that we go up to 5% and 6%. »
The Bank of Canada will make its next policy rate announcement on October 25. Mr. Vincent said the decline in inflation showed that monetary policy was “working,” but he said it was “still too early to declare victory.” “The persistence of core inflation remains a concern, because it could complicate the return to price stability. »
The Bank of Canada did not want to make Mr. Vincent available for an interview.