Fighting and keeping up with inflation is no easy feat, but it’s manageable. PHOTO by Pexels.
By the Canadian Chamber of Commerce
It’s no secret that inflation in Canada has been volatile since the pandemic. Last year, the inflation rate was at its highest since 1991.
A recent Reuters report forecasts that inflation will hover between 3% and 4% until the end of 2023, meaning that the spending decisions of Canadian customers will impact the profit margins of the businesses they patronize.
Fortunately, while Canada’s inflation rate is decreasing, there are ways to get ahead of the curve by learning more about how it affects businesses in Canada.
3 Small Business Dangers of High Inflation
Here are three ways that inflation is affecting small and medium-sized businesses in Canada:
- High inflation results in higher prices for goods and services, reducing the purchasing power of consumers and business owners. Additionally, higher prices lead to narrower profit margins as businesses try to remain competitive, which is challenging when spending decreases and prices increase.
- Inflation also leads to increased interest rates on borrowing products, including business loans, lines of credit and credit cards. The Bank of Canada (BoC) sets the prime rate to control inflation, and banks and other lending institutions adjust their interest rates accordingly. Inflation can hinder the ability of business owners to borrow money to keep their businesses running and make it take longer to repay borrowing products with variable interest rates. Small business owners should consider using AI business tools that compare multiple credit products based on their financials, like Cubeler, an AI-powered platform that can compare prequalified business financing products and fast-track credit offers—via the Cubeler Business Hub.
- Rising inflation also affects wages and, in turn, can hurt your staff retention efforts. As the cost of goods and services—and, consequently, the cost of living—increases with inflation, the demand for higher wages, a reasonable expectation for Canadian workers, increases. But wage hikes, unfortunately, put even more pressure on Canada’s small and medium-sized enterprises, which must provide competitive compensation to retain employees.
Fighting and keeping up with inflation is no easy feat, but it’s manageable. While the inflation rate is high, it is forecast to decrease by next year.
In the meantime, SMEs can modify their inventory, make deals with suppliers, find the right business financing and put some entrepreneurial creativity into their business strategy to streamline their operations.