Frequent price increases by businesses contributing to sticky inflation: BoC official

Price hikes driving inflation

Bank of Canada deputy governor Nicolas Vincent says businesses are still raising their prices more frequently than they did before the pandemic, which is contributing to higher-than-expected inflation.

Vincent made the comments Tuesday in his first speech as deputy governor to the Chamber of Commerce of Metropolitan Montreal.

According to his prepared remarks, the deputy governor says price increases have been larger than normal and more frequent than before the pandemic – a trend that has persisted.

"We believe that this behaviour by firms – both here and abroad – is intimately linked to the stronger-than-expected inflation we’ve seen," Vincent said.

Although he notes pricing behaviour by firms has been shifting closer to normal since the beginning of the year, that progress has been slow.

Corporate profits have drawn a lot of attention post-pandemic, as some people have questioned the fairness of rising profits during a period of high inflation.

The NDP has been especially critical of these high profits, blaming corporations for high inflation and called on the federal government to implement windfall taxes.

Meanwhile, the governing Liberals have also singled out the country’s major grocers for rising prices, calling on them to present a plan to stable prices by Thanksgiving, or face consequences.

Recent research from the central bank shows price increases have closely mirrored the cost increases businesses have faced. However, Vincent notes that even stable profit margins would mean customers are carrying the entire burden of higher prices.

The deputy governor says these recent discoveries about the effect pricing behaviour may be having on inflation is leading the Bank of Canada to rethink its assumptions about what drives inflation.

"The impact of our recent discoveries shouldn’t be underestimated. They force us to revisit some of the assumptions we make in our economic models as well as question the relationship between inflation and its drivers," he said.

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