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Posthaste: 'Greedflation' not to blame for rising prices, Bank of Canada research says Back to video

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Companies accused of “greedflation” as the costs for goods and services hit multi-decade highs did not take advantage of inflation to raise prices more than necessary, new research from the Bank of Canada suggests, challenging recent statements made by bank officials.

The research, published on the Bank of Canada’s web site on Aug. 1, looked at the changes in cost markups by companies, with the four authors concluding that “markup growth accounted for less than one-tenth of inflation in 2021” and zero in 2022.

“We show that, counter to what we would expect if firms were using their market power to raise prices, increases in the markups of Canadian firms do not coincide with the high inflation in 2021 and 2022. Rather, the data suggest that the contribution of changes in markups to inflation was limited,” the authors of the paper said.

Some companies, especially Canada’s large grocery chains, have attracted consumers’ ire as their profits rose in tandem with inflation. Statistics Canada said the June consumer price index (CPI) showed the cost for food purchased at stores rose 9.1 per cent from the year before.

Overall, however, inflation decelerated to 2.9 per cent in June after peaking at 8.1 per cent in June 2022, Statistics Canada said, showing the bank has been making headway in fighting off rising prices.

But along the way, Bank of Canada governor Tiff Macklem has said company pricing practices have played a role in the inflation problem, echoing Canadians’ anger.

In its statement alongside the latest rate hike on July 12, the bank said price increases were persisting in parts of the economy, noting that a recent survey found “businesses are still increasing their prices more frequently than normal.” The bank added that it would continue to evaluate whether inflation expectations, wage growth and “corporate pricing behaviour are consistent with achieving the two per cent inflation target.”

While not directly addressing the bank statement on corporate pricing, the research paper’s authors acknowledge their findings might differ from those of the Bank of Canada’s Governing Council and that “no responsibility for them should be attributed to the bank.”

So how did authors Panagiotis Bouras, Christian Bustamante, Xing Guo and Jacob Short arrive at their conclusions?

They tapped Statistics Canada Quarterly Survey of Financial Statements, which tracks data on sales and the cost of goods sold for a wide-ranging sample of non-financial incorporated businesses covering nine sectors: agriculture, construction, energy, information, manufacturing, retail, services, transportation and warehousing, and wholesale trade.

The foursome then compared the average growth rate of markups with CPI inflation from 2018 through to 2022.

The authors found that most of the increase in markups during that period occurred in 2020 when inflation was low, averaging around one per cent. Further, they noted that markup changes, which “may have contributed to the initial rise of inflation in 2021” started to slow later in the year just as the CPI began to accelerate. During 2021, inflation was five per cent whereas markup growth rose 0.44 per cent, they said.

When inflation peaked last year, “growth in markups was near zero and negative,” they said.

They interpreted that as indicating that the rise in inflation was due to costs and not companies flexing their market heft to raise margins.

“Our results do not indicate that this markup growth was inflationary,” the authors wrote.

While the conclusions will surprise many consumers, they fall in line with assertions from large grocers who continue to defend themselves against accusations they are taking advantage of financially pressured Canadians.

“The math is very simple,” said Loblaw Cos. Ltd. chief financial officer Richard Dufresne during an earnings call. “Cost increases from big brands were well above Canada’s food inflation and our food margins declined, suggesting grocer profiteering just doesn’t add up,” he said after the company reported a profit of $508-million in the latest quarter.

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It’s that time of the month when real estate boards for major Canadian cities report housing activity for the previous month.

Following on the heels of a strong July for Calgary, data for Vancouver showed homes sales jumped nearly 30 per cent last month and prices were up across the board as the market continued to rebound despite higher mortgage costs.

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Why chance the stock market when you can earn some of the best interest rates in years and keep your money safe? That’s the dynamic active investors are battling as they struggle to attract money from large investors who are holding back in the face of volatile markets and cash accounts offering the best yields in years. Read the full story here.

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Today’s Posthaste was written by Gigi Suhanic, (@gsuhanic), with additional reporting from The Canadian Press and Bloomberg.

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