Strategy

The CEO Poll: Inflation will harm us all

Canadian executives believe the inflation rate will continue to rise.

20090418;ON;Feature;U4 — People are seen shopping for fruits and vegetables at the Loblaws Grocery store at Yonge Street and Empress Avenue.

Whether it means paying more for tomatoes in the grocery store or absorbing increasing business costs, many Canadians are feeling the bite of inflation. According to a recent Compas poll of corporate executives, the situation is going to get worse during the next few years.

The inflation rate in Canada spiked to 3.3% this March, pushing it outside of the Bank of Canada’s target range of 1% to 3%. Canadian CEOs expect inflation to continue to rise, predicting that it will hit 3.4% one year from now and 3.9% in two years. “This curse was expected to resurface,” said one CEO. “It will be painful.”

In terms of who would bear the cost, CEOs thought the average household would be most affected, rating them a 5.0 on a 7-point scale, where 1 means no harm at all and 7 means a lot of harm. The respondents also felt inflation would have a significant negative impact on the economy in general and on their own businesses, rating each a 4.2.

The question on many business leaders’ minds is if inflation will prompt the Bank of Canada to raise interest rates and restrict the money supply. Execs predicted that the bank will indeed do those things, rating the possibility a 5.0 on a 7-point scale, where 1 means not at all likely and 7 means very likely. However, the executives also recognize that to a lesser extent, the Bank of Canada may be motivated to keep rates frozen in order to prevent further appreciation of the Canadian dollar against the U.S. dollar, a situation that is harmful to Canadian exporters.

One executive expressed concern that the cure for inflation might be worse than the disease. “I don’t think inflation will do much harm to the economy and to my business, but the high-interest-rate policy that I anticipate the Bank of Canada will follow will do significant harm to both.”

When asked what was the biggest factor driving inflation, 60% of CEOs pointed to oil costs. Just 16% felt that the U.S. economy was the main cause, and costs in China and rising food prices weren’t seen as significant factors. According to one executive: “Everything connects to a gas pump.” 

 

What do you predict will be the year-over-year inflation rate:

One year from now 3.4%
Two years from now 3.9%

 

To what extent do you think the Bank of Canada will use interest rates or money supply to control inflation? Use a 7-point scale, where 1 means not at all likely and 7 means very likely. 5.0
To what extent do you think the Bank of Canada will allow inflation in order to prevent the Canadian dollar from appreciating? 4.4

 

On a 7-point scale, where 1 means no harm at all and 7 means a lot of harm, to what extent do you predict inflation will harm:

Average households 5.0
Your own business 4.2
The economy 4.2

 

Where do you think the strongest inflationary pressures are coming from:

TODAY

Oil costs 60%
U.S. economy 16%
China 9%
Food 9%
Canada’s economy 6%

IN ONE YEAR

Oil costs 36%
U.S. economy 20%
China 19%
Food 12%
Canada’s economy 11%
Don’t know 2%