BUSINESS

Consumers can expect only modest prices increases in 2013: BMO survey

10/25/2012 12:31 EDT | Updated 12/25/2012 05:12 EST
TORONTO - Canadian consumers won't need to dig much deeper when faced with the ka-ching of the cash register in 2013, according to a new Bank of Montreal survey that predicts only a modest 1.3 per cent increase in prices next year.

In fact, the bank (TSX:BMO) said its survey of large and small businesses in late August and early September found that six in 10 planned no price increases at all in 2013.

"Raising prices does not even rank in the top five strategies for business owners looking to increase the value of their companies," BMO said.

Companies that do plan increases will do so by an average of seven per cent, while those planning to lower prices will cut them 18 per cent on average.

Nationally, 29 per cent of Canadian businesses plan to increase prices in 2013, down five percentage points from last year.

Those operating in the services, manufacturing, and construction sectors were the most likely to indicate a price increase was on the horizon, as were companies in Alberta where a national high 38 per cent said they planned to boost prices next year.

That compared with 32 per cent in Atlantic Canada, 33 per cent in Quebec, 25 per cent in Ontario, 27 per cent in Manitoba and Saskatchewan and just 22 per cent in British Columbia.

Overall, four per cent of companies surveyed indicated they would cut prices in 2013, ranging from a low of one per cent of those surveyed in Manitoba and Saskatchewan to a high of six per cent in Quebec.

The survey found little difference between large and small businesses when it came to holding the line on prices. Just 32 per cent of large concerns and 29 per cent of small companies indicated they were likely to raise prices next year.

Companies in the business and financial sectors were the most likely to indicate they would keep prices unchanged (69 per cent), followed by retailers (67 per cent).

In contrast, 34 per cent of those businesses surveyed in the construction, manufacturing and services sectors said they are most likely to raise prices next year.

"Modest economic growth, the high Canadian dollar and the lure of cross-border deals have convinced many Canadian businesses not to raise prices," said Sal Guatieri, senior economist, BMO Capital Markets.

"Staying competitive by cutting costs and raising productivity is the name of the game and will help Canadian businesses in the long run."

Guatieri noted that with a slower economic growth rate for Canada of 2.2 per cent in 2012, price pressures will be contained.

"The inflation rate will likely fall from 2.9 per cent last year to 1.6 per cent in 2012 and stay below two per cent next year, supporting the spending power of households," he said.

In other findings of the survey, the top five strategies expected to be employed by businesses for improving value were: increasing volume (17 per cent), making better use of technology (14 per cent), improving management (12 per cent) decreasing overhead costs (11 per cent and better managing and reducing debt (10 per cent.)

"In the current business environment, it is important that businesses look at both sides of the coin," said Steve Murphy, senior vice-president, BMO Commercial Banking.

"On one side, firms need to look for opportunities to increase efficiency, reduce costs, and invest in the technologies and process improvements that will enhance productivity. On the other side, successful businesses are those that have also become more resilient, and have actively found ways to diversify their supply chains, connect with new customers and open new markets."

The telephone survey was conducted for the bank by Pollara Strategic Insights between Aug. 13 and Sept. 5 using a sample of 500 Canadian business owners. Results carry a margin of error of plus or minus 4.4 percentage points 19 times out of 20.