Canadian consumers aren’t the only ones feeling the pinch of the Bank of Canada’s latest rate hike; small businesses are hurting too, says a new report.
Seventy per cent of small business owners expect Wednesday’s rate hike to have a negative impact on their operations, according to the report by the Canadian Federation of Independent Businesses (CFIB).
On Wednesday, the central bank raised the policy interest rate by 75 basis points to 3.25 per cent — the highest since the global financial crisis — and signaled that more rate hikes would follow.
“While keeping inflation at reasonable levels is definitely an important policy goal, the rate increase comes at a time when 62 per cent of small businesses are still saddled with pandemic debt, for an average of $158,000,” Simon Gaudreault, chief economist and vice-president president of research at CFIB, said in a press release. “Doing business in Canada is becoming too costly. Rising costs, compounded with interest rate hikes and difficulties finding staff, are putting business owners in a tough spot.”
The fifth rate hike this year, coupled with inflation and labor shortages, has forced many businesses to pass the costs onto consumers.
CFIB’s August business barometer found that 32 per cent of businesses are planning to raise their prices by at least six per cent in the next 12 months.
And a majority of businesses have already started, according to a June CFIB member survey. It found that 79 per cent of small business owners increased their prices more than usual over the past year to make up for rising costs. A further 50 per cent of businesses owners reported having to raise their prices a lot more than usual.
“Raw material shortages, skyrocketing parts, components, materials, labour, insurance, fuel/heating, and electricity costs — everything costs more,” a manufacturing business owner in Ontario said in the report. “For suppliers/manufacturers like us, it feels like the end. Consumers are looking for cheaper alternatives and big businesses are outsourcing production to keep costs low.”
The top three factors causing small business owners to increase their prices were input costs and product availability (materials, ingredients, etc.), transportation and fuel prices and labor costs.
The CFIB member survey also found that most (81 per cent) of small business owners believe the cost pressures they face are not understood by the federal government.
“This should sound the alarm for governments to take swift action and provide more cost relief,” CFIB president Dan Kelly said in the press release. “As small firms are struggling to keep up with staggering increases on almost every line of their budget, governments must avoid imposing additional costs that would put the livelihood of small businesses at risk.”
Kelly urged Ottawa to freeze planned federal tax hikes and immediately implement the promised reduction in credit card fees for small merchants.
“Putting upcoming tax hikes on hold and fast-tracking promised reductions in credit card processing fees would be two early ways the federal government can help,” he said.
The CFIB’s other recommendations for Ottawa were to increase the forgivable portion of the Canada Emergency Business Account (CEBA) loan, extend the repayment deadline to quality for partial loan forgiveness and increase the small business deduction.
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Today’s Posthaste was written by Noella Ovid, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
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