Inflation, supply chain bottlenecks and labor shortages are combining to put extreme downward pressure on the economy in Canada, which is affecting some promo clients’ ability to buy.

The increase in prices for common goods, such as housing, groceries and fuel, is at a nearly 20-year high. Bank of Canada Governor Tiff Macklem has said in recent weeks that inflation is currently running at about 4.5% and will most likely increase to 5% by the end of the year. Normally, the Bank’s target rate is 1% to 3%; it’s been higher than that for six consecutive months.

“It’s off the charts,” said Scott Hulbert, managing director of ideavation (asi/229801) in Toronto. “For the average person, things are way more expensive. Now they’re saying it’s not short-lived, and we should expect it to continue. People are getting less for their dollar. It’s a hidden tax on the low and middle classes. It’s worrisome to me.”

It comes as the jobs report for October was lower than expected, and after an economic contraction in the second quarter of the year. The economy added 31,000 jobs last month, a paltry 0.2% increase from September. It’s below what analysts had expected (42,000), but it did push the jobless rate down to 6.7% from 6.9% in September. Analysts say virus recovery in Canada, even as it maintains a nearly 75% full vaccination rate, is uneven and running out of much of the momentum it enjoyed immediately after restrictions were lifted this past summer.

Provincial recovery is also uneven; Ontario gained 37,000 jobs and British Columbia 10,000, while Saskatchewan lost 6,500 and Alberta 9,000. Almost 380,000 people across the country are considered “long-term unemployed,” meaning they haven’t had a job in six months. That’s down from a peak of 486,000 in April, but it’s still a quarter of all jobless Canadians.

To entice people to fill jobs and keep existing staff, employers have been compelled to offer higher wages, which is contributing to inflation. “I’m seeing increases in labor wage rates anywhere from 10% to 40%,” Tanya Cerniuk, head of sales for Canada at global staffing firm Adecco Group, told Reuters. “[One was] offering C$14 ($11.35) an hour and now they’re offering C$19.50 per hour. Things are changing so quickly. Employers are having to be very agile.”

But with ongoing virus uncertainty, some companies haven’t yet felt stable enough to offer wage increases and instead have been opting for signing bonuses and hourly premiums based on attendance and retention, said Cerniuk. At the same time, retailers, restaurants, manufacturers and warehouses are all competing for seasonal workers. It’s “a perfect storm,” said Cerniuk.

The Bank of Canada has suggested it could increase its benchmark interest rate soon from the current 0.25%. This would be the first increase since October 2018. The government has also ended much of its COVID economic aid for individuals and businesses, citing an improving economy and labor market.

Canada’s high inflation rate is a temporary problem, but that doesn’t mean it will be resolved quickly, Bank of Canada Gov. Tiff Macklem said. https://t.co/UqpFl87igy

— Real Time Economics (@WSJecon) November 10, 2021

All of this is affecting day-to-day life in Canada, including promo clients’ spending habits. Patty Weisdorf, a senior account executive at Cotton Candy (asi/169186) in Mississauga, ON, serves mostly the finance, technology and healthcare sectors. She said the cost of groceries and gas has surged in recent months. “Lucky for me, my clients still seem to have budgets to spend,” she said. “I’m just concerned 2022 might be really slow.”

Amanda Dudek, owner of A Dudek Promotions (asi/101207) in Maple, ON, said she’s seeing cost increases across the spectrum, even in her kids’ organized sports. Prospects and clients in food, construction and entertainment continue to struggle with low and hard-to-source inventory and surging materials costs.

“I’m not seeing the Q4 sales uptick like in years past,” she said. “And if there is interest, their budget’s been reduced, which poses a challenge in delivering a quality product for a reasonable price given that everything’s increased in price dramatically. It’s difficult being the middleman when the cost increase isn’t coming from us directly and we have no control.”

“Everything’s increased in price dramatically. It’s difficult being the middleman when the cost increase isn’t coming from us directly and we have no control.” Amanda Dudek, A Dudek Promotions

New product offerings at Toba Sportswear (asi/91408) in Winnipeg, MB, will be limited because of supply chain challenges, said President Hartley Hyman. At the moment, Toba has fewer styles in stock than normal, but a deep inventory on the styles that are in-house.

“Sadly, we’re not always able to have everything people want in stock, but the depth has really increased,” Hyman said. “We’ve seen growing interest in JERZEES fleece because of shortages with fleece from Gildan. Most customers are willing to move from one brand to the next when they understand they’re going to get a category-equivalent product at about the same price, though it adds to the lead time for the order because there can be back-and-forth.”

At ideavation, those clients who didn’t purchase during the height of the pandemic haven’t returned yet, Hulbert said. Those who have been buying continue to do so, and they’re aware of where the price increases are coming from. But returning clients are going to experience “sticker shock,” he said, because of an increase in product, shipping and fuel costs.

“They say, ‘Here’s our budget,’ and we have to tell them it’s too lean for what they want,” Hulbert said. “Their budget is less than what it would take to ship, just the freight. We’ve been doing a lot of drop-shipping because people are still working at home, but it’s gotten really expensive. When we quote, we separate out the freight costs so they can see exactly what they’re paying for and why it costs so much.”

“We’ve been doing a lot of drop-shipping because people are still working at home, but it’s gotten really expensive.” Scott Hulbert, ideavation

Meanwhile, companies aren’t booking conferences, trade shows and requisite business travel because they’re still “skittish,” Hulbert said. While there’s little talk of another lockdown because of the high vaccination rate, corporations are still nervous about scheduling large events and attendees’ willingness to show up in person.

“January 2022 will be the litmus test,” he said. “We’ll be deep into winter and cold/flu season. It’s an arbitrary date to go back to normal, like returning to the office and in-person shows. We’re in a holding pattern for the rest of the year. I think we’ll see more spending, but it’s still worrying as a small business.”