'I'm losing sales': As Ottawa's inflation rate soars, businesses are feeling the pinch

inflation

Hamed Zadeh has seen the writing on the wall when it comes to the impact of soaring inflation – it’s right there in the ink he needs every day to run his printing business. 

The owner of Ottawa Print Services says ink that used to retail for $60 a litre at the start of the pandemic is now a much more precious commodity – so much so that some users are even resorting to the black market to find it.

“Now, if I’m lucky, I get it (for) $350 to $400 (a litre),” Zadeh said Wednesday. “It’s crazy.”

The Ottawa entrepreneur is one of countless business owners reeling from the effects of the highest price increases the country has seen in decades.

Statistics Canada said Wednesday the country’s annual rate of inflation hit 6.7 per cent in March, the fastest year-over-year increase in the consumer price index in over 31 years. In Ottawa, the rate was even higher – 7.5 per cent, the second-highest rate among major Canadian cities after Charlottetown.

Zadeh doesn’t need to look at a Statistics Canada report to appreciate the gravity of the situation. 

Prices of his other key commodity – paper – have also skyrocketed by as much as 60 per cent since the COVID-19 crisis began. That, in turn, has forced him to pass on some of those increased costs to his clients, who sometimes, he admits, “get pissed off” at the price hikes.

“They can’t afford it, so I’m losing sales, too,” Zadeh said, noting one customer who used to routinely order 2,000 copies of a recipe booklet recently cut back her order to 500.

Hussein Valji feels Zadeh’s pain. 

'Double whammy'

Valji owns H&N Hospitality, whose holdings include hotels in Ottawa and Brockville. He says rising costs of everything from brunch staples like eggs to room necessities like linens are adding insult to injury for an industry that’s still struggling to recover from the devastating effects of the pandemic.

“For us, it’s a bit of a double whammy,” he explained. “We have inflationary pressures that we’re having difficulty passing on to the guests. There’s not enough demand right now.”

To make matters worse, soaring gasoline prices – which rose nearly 40 per cent in March compared with the same month one year earlier – are giving would-be road-trippers another reason to think twice, Valji added.

“People that are travelling, that’s a big hindrance for them,” he said.

Statistics Canada said the inflation increase last month compared with a gain of 5.7 per cent in February, and was the highest reading since inflation hit 6.9 per cent in January 1991 when the GST was introduced.

Fuelling much of the increase in March were higher prices at the pumps as gasoline prices rose 39.8 per cent compared with the same month one year earlier.

Statistics Canada said the consumer price index would have been up 5.5 per cent year-over-year if it had excluded gasoline from its calculations, suggesting far broader price pressures.

The agency said prices were driven higher in March on the back of the country's hot housing market, supply-chain constraints and the war in Ukraine that has affected prices for oil and food.

Statistics Canada said homeowner replacement costs, which includes prices for new home prices, rose 12.9 per cent year-over-year in March.

Grocery store prices rose 8.7 per cent year-over-year, the fastest annual rate since March 2009, aided by the largest annual increase in dairy and egg prices since February 1983.

Russia's invasion of Ukraine was also blamed for jumps in pasta prices and cereal, the latter rising at the fastest annual pace since June 1990. Russia and Ukraine are major wheat exporters.

Provincially, Statistics Canada said growth was most pronounced in Prince Edward Island, where prices rose 8.9 per cent year-over-year.

As prices rose faster on an annual basis in March, average hourly wages were up by 3.4 per cent, still far behind inflation and eating into consumers' purchasing power across income levels, said BMO chief economist Douglas Porter.

Gap 'not sustainable'

“This is not sustainable to have a gap of more than three percentage points between inflation and wages,” he said.

“Either inflation has got to come down fast, or wages have got to rise up to meet if not exceed inflation in fairly short order, and I think it's going to be a little bit of both.”

The growing rate of inflation has spooked economists and central bankers amid signs that Canadians are beginning to expect inflation to stay higher for longer.

Last week, the Bank of Canada increased its key policy rate by half a percentage point, raising the benchmark interest rate to one per cent with warnings that more rate hikes are to come this year.

“The Bank of Canada has been behind the curve and they've recognized that and now they have to catch up,” Desjardins chief economist Jimmy Jean said.

“That's why they went out with that 50 basis-point rate hike, and we think they have another one in store for the next meeting.”

Rising interest rates are expected to encourage saving and curb borrowing and spending, helping cool Canada's housing market and the cost of goods. As demand goes down prices tend to rise more slowly, or even edge down, easing inflation.

But the dampening effect of higher interest rates won't be immediate.

“It does take time for those interest rate hikes to have an effect on the economy and on inflation,” Jean said.

The average of the three core measures of inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 3.77 per cent in March. That's the highest recorded since March 1991 and up from the 3.53 per cent in February.

It’s a situation that has business owners like Zadeh and Valji keeping a close eye on every penny.

“I don’t want to buy so much inventory and then we don’t have the sales for it,” Zadeh said. “This is the beginning. In the next couple of years, I think it’s going to be scary.”

OBJ readers: Never miss a story. Get OBJ's email updates in your inbox. Click here to subscribe.