How consumers are cutting back
Consumers are confronting inflation, which seems to be hurting most at the gas pump, in strategic ways.
As the Bank of Canada yesterday projected inflation would top 4 per cent by early next year, Mary Beth Kyer noted that she “really lucked out” when she chose to build a cottage near Collingwood, Ont., last year. Soon after construction wrapped, the builders told her she would have had to pay 15 per cent more to build if it didn't finish by the end of 2007.
While she managed to save thousands of dollars in construction, now that the finished cottage beckons she has decided a more lucrative strategy is staying at home.
Unable to escape the fuel prices attached to driving out to her summer retreat, Ms. Kyer and her husband have been taking on the landlord role rather than the tenant one this summer.
“[The price of] getting to the cottage and back - renting it out makes more sense,” she said.
She said the cottage's location, near Toronto, makes it more attractive than many other summer rentals in popular locations, such as Haliburton, for others who are budgeting in the fuel department.
En route to her office in downtown Toronto Tuesday morning, Ms. Kyer stopped into a high end grocer to pick up ground coffee, a luxury she still treats herself to. Such indulgences are balanced out by her larger savings with the cottage.
While actor and writer David Sparrow says he can't scrimp on tuition, books and transportation costs for his two daughters - both University of Toronto students - he has been more careful with spending on extravagances that were once comforts, vacations and dining out.
“We're being more judicious in things like eating at home rather than to eat out,” he said.
Nan Berezowksi, a Toronto immigration lawyer, says she can't give up her daily $2.47 hit of Starbucks coffee (she rationalizes that she needs it to wean herself off Diet Coke), but she and her husband try to avoid getting into their cars to commute to work each morning, opting instead to walk or hop on a streetcar.
After noticing the growing dent left in his wallet with every fill-up, Ms. Berezowski's husband told his wife that finding a local daycare for their five-year-old daughter has become a greater priority since the alternative to driving – a three-bus trek to his mother's home – is hardly ideal.
She said she can make her own small changes to keep up with inflation, but expects the municipal government to, as well, in the form of investment in public transportation.
“All our cities are dependent on cars,” she said. “Prices may ebb and flow, but they're not going to go down.”
She said the daily drives cannot be taken out of her schedule at the moment, so her family has instead decided to gradually scale back on weekend road trips out of the city.
Last week, the Bank of Canada released survey results lthat suggested 42 per cent of surveyed companies plan to charge consumers more for goods in the next 12 months to keep up with rising costs.
How companies are coping
For Bill Swift, the owner of Swift Canoe & Kayak in Gravenhurst, Ont., the steady upward march of oil and other commodity prices is particularly ominous.
“Much of the raw material for canoe and kayak production comes from oil,” he explains, and that's why Swift is planning to hike prices for its boats by 10 to 15 per cent at the end of the year, and has already upped its delivery fees by 25 per cent. Those decisions were obvious, Mr. Swift says, “once we realized prices weren't coming down.”
With the Bank of Canada forecasting inflation over 4 per cent for next year, and 42 per cent of executives responding to its most recent business outlook survey saying they anticipate raising prices for consumers faster over the next 12 months than in the last, Mr. Swift is far from alone.
As David Wilkes, the senior vice-president of the Canadian Council of Grocery Distributors puts it, “we are seeing a structural change in the price of commodities, and as a result there will be a structural adjustment” in prices.
The grocery sector has been particularly hard hit by the soaring value of commodities, since it is heavily dependent on oil, to run huge distribution networks, and on grain, which has experienced similar inflation.
Average bread prices in Canadian supermarkets have risen by 10 per cent this year, while pasta is up 26 per cent.
And in the low-margin, high-competition grocery sector, raising prices on the shelf is just about all that can be done to deal with the cost of raw materials.
“There's very little room to absorb” increased expenses without upping prices, Mr. Wilkes said, and even then supermarket chains are severely limited by their competition.
Things are even tougher at the smaller end of the food chain. At Stickling's Specialty Bakery Ltd. in Peterborough, Ont., owner Michael Walter says that he is “still two steps back” on meeting higher expenses even after having raised prices by 10 to 20 per cent across the board.
Those increases just cover the rising cost of ingredients like flour, leaving the bakery to absorb higher energy prices and consumers cutting back on purchasing its organic breads and cakes. Mr. Walter is unsure to what to do next, since input prices don't appear to be coming down any time soon. “We have to do our homework,” he said, and find ways to “produce smarter. It's the reality.”
For some businesses, however, there may be a silver lining to rising commodity costs. At Swift Canoe & Kayak, Mr. Swift added that sales are actually up slightly. The reason? Some cottagers balking at driving gas-guzzling motor boats around Muskoka's lakes are opting for paddle power instead.
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