What impact is inflation having on Canada's retail sector?

Rising inflation rates are causing Canadians to hold on tightly to their wallets, as the cost of gas, groceries and more is on a steady incline.

With shoppers staying away from recreational spending, this is resulting in fewer sales within Canada’s retail sector, retail analyst Doug Stephens told CTV’s Your Morning on Tuesday. Climbing prices, coupled with a slowdown in the pace of economic growth, will lead to greater strain placed on the average consumer, he said.

“It all adds up to inflation's evil twin, actually, stagflation, which means we have a contracting economy and rising prices at the same time,” said Stephens, founder of Retail Prophet, a consultancy firm. “[This is] putting a tremendous amount of pressure and stress on consumers just in terms of what to expect next.”

Several factors are playing a role in rising prices, Stephens said. Supply chains hit hard by the pandemic, for example, are still attempting to recover from the high costs of raw materials and the transportation of goods, resulting in a lack of consistency in the availability of goods. The ongoing crisis in Ukraine is also placing upwards pressure on oil prices. Finally, the pandemic has seen average home prices shoot up to their highest levels on record in an overheated economy.

“Canadians have experienced over the last two years this inordinate growth in the value of their real estate holdings,” Stephens said. “Everything is unwinding at once.”

Consumers aren’t the only ones feeling the strain of Canada’s current economic environment – so are retailers. Stephens’ advice for retailers is to focus on maintaining connections with current buyers.

“Retailers are rightfully fearful of what lies ahead,” he said. “It really means you have to retrench, figure out who you are, make sure you're solid in your positioning and really reinforce those bonds that you have with the customers that you do have today.”

Watch the full video with CTV’s Your Morning at the top of this article to hear more about the impact of rising prices and slower economic growth on Canada’s retail sector.