First of all, we must ask, is “normal” really a thing? After 2+ years of focusing on the COVID-19 pandemic, I’m not sure any of us fully understands what “normal” looks like as we move into a world where we continue to deal with new variants but also try to return to a semblance of the world we had before any of us had heard the word “COVID.”
The easing of COVID restrictions, many companies are returning to pre-pandemic work levels, though in some cases that work is being delivered by a labour force who are still working from home or using a hybrid model.
As these good changes occur, we are now dealing with the impacts of inflation and the ways in which it trickles down to impact our businesses. According to a first-quarter 2022 Bank of Canada Business Outlook Survey[1], companies expect elevated inflation rates for at least two more years, though are hopeful that they will return to 2% (where it has been for the past 25 years or so) within three years. But what does that mean for 2022 and 2023? Here are a few things to expect.
Fuel Prices Increases Felt Throughout the Economy
Getting raw materials and finished products where they need to be, when they are needed, has been an issue for at least the last year. But just as materials started moving more freely, gas prices – which were already rising – spiked due to the Russian invasion of Ukraine. As Canadian Federation of Independent Business’ senior vice president of national affairs, Corinne Pohlmann, recently said, “Small businesses may be on their way out of the pandemic, but it will be a slow and difficult climb.”
In general, higher fuel costs create a ripple effect on the economy that impacts everything from consumer spending to the delivery of the goods and services we depend on. In fact, increased gas prices tend to have more impact on spending than other commodity increases because we are constantly reminded of these costs by station signs as we drive around and, of course, every time we fill up our cars. The psychological impact of this is that consumers reduce their discretionary spending and avoid driving, when possible, which is eventually felt in nearly all sectors of the economy.
Labour Shortages Impacting Businesses
According to Statistics Canada, there were close to a million unfilled jobs in the fourth quarter of 2021 – up 63% when compared to 2020. Additionally, open positions are taking longer to fill, with nearly half of them remaining vacant to more than 60 days. While many of these positions are lower paid jobs like servers, retail personnel, and construction workers, all sectors are feeling its impacts in some way.
In fact, pay rates are one of the biggest issues leading to these shortages in the first place. During the pandemic, many people realized that they could live on less than they had previously assumed, and prioritized time spent with loved ones over work. This has led some to retire earlier than expected. Yet others started rethinking what they were doing to make a living, as well as their loyalty to their employers, and started to demand more in terms of pay, benefits, and flexibility.
Small businesses are feeling the hit and having to make some hard decisions. Some are scaling back operations while others are investing more aggressively in automation technology. According to the same Business Outlook Survey referenced above, 42% of businesses said they are putting more money into machinery and equipment to ease labour-related constraints.
Another way businesses are dealing with labour shortages is by hiring less experienced workers, including immigrants, younger people, and retirees who are interested in working part-time. While this requires businesses to invest more time and money in job training, at least the work is getting done, and the company can continue to survive and hopefully even grow.
Price Increases Necessary in Nearly All Sectors
The difficulty finding labour, increases in fuel costs, and other post-pandemic factors are leading to the necessity to raise prices across the board. Going far beyond gas and groceries, we can expect to pay more for nearly everything we consume and all the services we need too. As businesses must pay their employees higher salaries, those costs will almost certainly get passed on to consumers. So aggregately, even though some people may be making more money, they are also parting with more of that same money to purchase the things they need.
While it may seem like an ever-spinning hamster wheel, things will return to normal eventually. Spiking wages will eventually even out as those who are pulling from their savings while looking for the perfect position decide to return to the job market. Gas prices will decrease when the war in Ukraine ends. Supply chain challenges that have started to improve, will continue to do so as more positions are filled and fuel prices decrease in time.
What can you as a business owner do in the meantime? This is a great time for some short- and long-term planning. Take a look at where your business is now, where you want it to be, and determine what adjustments you need to make now to keep it moving toward that goal. Do you need an influx of cash to get past this challenging time? With interest rates rising, loans are probably as cheap as they will be for a while so it could make sense to look at your options now versus later. Is it time to invest in some equipment or other technology to ensure you remain competitive? Are there new products you can develop or services you can provide to increase your monthly cash flow? Are there areas where you should scale back? All these – and many more – questions are important to answer as you plan for the next few years and beyond. We have helped many businesses plan for the future and would be happy to help you do the same. Reach out if we can help in any way rswmarketing@rsw.ca.
[1] https://www.bankofcanada.ca/2022/04/business-outlook-survey-first-quarter-of-2022/