BMO Financial Group

BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

October 27, 2012 10:00 ET

Consumers to Benefit as Majority of Canadian Businesses Have NO Plans to Raise Prices in 2013-BMO Report

- Six in ten business owners plan to charge the same amount next year

- Prices expected to rise an average of 1.3 per cent in 2013

- Businesses in Alberta, and those operating in the services, manufacturing, and construction sectors are the most likely to raise prices

- Increasing volume and better use of technology seen as more effective strategies to increase business value than raising prices

TORONTO, ONTARIO--(Marketwire - Oct. 27, 2012) - Canadian consumers should expect price increases to be minimal, as 61 per cent of Canadian businesses have no plans to raise prices next year according to a new report from BMO Bank of Montreal.

The survey found that, for Canadian business owners, raising prices does not even rank in the top five strategies for business owners looking to increase the value of their companies. Owners who participated in the poll ranked increasing volume as the top strategy they will adopt to boost company value.

Plans to Charge Customers (2013)

On average, Canadian businesses plan to charge customers 1.3 per cent more for products and services in 2013. For those who plan to increase prices they plan to charge 7 per cent more, while those who plan to lower prices plan to cut them by an average of 18 per cent on average.

Nationally, 29 per cent of Canadian businesses plan to increase prices in 2013 - down five percentage points from last year. Intentions vary by province; 70 per cent of businesses in British Columbia plan on holding the line on prices, while businesses in Alberta are more likely to increase prices (38 per cent). The survey also found little difference between large and small businesses with regard to plans to raise prices (Large: 32 per cent more likely to increase prices/9 per cent less likely, Small: 29 per cent more likely to increase prices/4 per cent less likely).

The same prices 61 % 56 % 56 % 65 % 49 % 54 % 70 %
Charge less 4 % 2 % 6 % 5 % 1 % 2 % 2 %
Charge more 29 % 32 % 33 % 25 % 27 % 38 % 22 %

By sector

Companies in the business and financial sectors indicate they are most likely to keep prices the same (69 per cent), followed by retailers (67 per cent). In contrast, 34 per cent of those businesses surveyed in the construction, manufacturing and services sectors say they are most likely to raise prices next year.

"Modest economic growth, the high Canadian dollar and the lure of cross-border deals have convinced many Canadian businesses not to raise prices," said Sal Guatieri, Senior Economist, BMO Capital Markets. "Staying competitive by cutting costs and raising productivity is the name of the game, and will help Canadian businesses in the long run."

Mr. Guatieri noted that with a slower economic growth rate for Canada of 2.2 per cent in 2012, price pressures will be contained. "The inflation rate will likely fall from 2.9 per cent last year to 1.6 per cent in 2012 and stay below 2 per cent next year, supporting the spending power of households."

Most Effective Strategies to Increase Business Value

The study conducted by Pollara Strategic Insights found that, on average over the past five years, businesses have seen their value increase by 19 per cent. While no particular strategy stands out above all others, raising prices is not seen as one of the top five most effective strategies. The report also found that at least half of all businesses surveyed have used each of these top five strategies:

Strategy to Increase Company Value Most Effective Strategy Used in Past Year
1. Increase volume 17 % 64 %
2. Better use of technology 14 % 74 %
3. Improve quality of management team 12 % 53 %
4. Decrease overhead costs 11 % 61 %
5. Manage/reduce debt 10 % 50 %
Increase prices 8 % 49 %

"In the current business environment, it is important that businesses look at both sides of the coin. On one side, firms need to look for opportunities to increase efficiency, reduce costs, and invest in the technologies and process improvements that will enhance productivity. On the other side, successful businesses are those that have also become more resilient, and have actively found ways to diversify their supply chains, connect with new customers and open new markets," said Steve Murphy, Senior Vice-President, BMO Commercial Banking.

The telephone survey was conducted by Pollara Strategic Insights between August 13 and September 5, using a sample of 500 Canadian business owners. Results carry a margin of error of ±4.4 per cent, 19 times out of 20.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $542 billion as at July 31, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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