Rising fuel costs stemming from the Iran war are starting to impact small and medium-sized businesses in Canada, according to the latest survey findings, which suggests their optimism has plummeted.
The Canadian Federation of Independent Business released its Business Barometer report for March, which showed that higher overall costs for businesses were one of the main reasons for a drop in optimism.
Fuel costs, specifically, saw the largest monthly jump among the options survey respondents could select for what was contributing to their overall cost pressures at 50 per cent, which was up by 14 percentage points.
“Small business owners are faced with uncertainty given the situation in Iran. What we’ve noticed remarkably is the increase in the number of our members who articulated that fuel costs were going to be once again a key pressure for them,” says Christina Santini, director of national affairs at the Canadian Federation of Independent Business.
“Our members in the transportation sector actually felt the greatest bump and the greatest pressure because they experienced it right away. Just like everyone who’s filling up the tank at the gas station, they’re noticing right away that their costs day to day will be going up. But the reality is all sectors are going to be feeling it across the supply chain.”
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The CFIB said its long-term confidence index, or the 12-month outlook among participating business owners in March, fell nine percentage points to 55.8 per cent from 64.8 in February, while the short-term confidence index, or three-month outlook, dropped about seven percentage points to 54.5.
The report describes these declines as a “significant deterioration.”
The Iran war has sent oil prices skyrocketing since the first strikes were launched by the U.S. and Israel on Feb. 28, which led to the effective closure of the vital Strait of Hormuz shipping channel in the Persian Gulf region. This has choked off about 20 per cent of the world’s oil supply, which translates to higher fuel costs for consumers and businesses alike.
Insurance costs were the highest overall at 65 per cent, tax and regulatory expenses at 61 per cent, and wage costs at 59 per cent.
Business owners may be faced with difficult decisions when processing higher operational expenses, including from more expensive fuel and other costs. Typically, the end result is that consumers will see sticker prices go up.
“So we are hearing from small businesses that they’re going to be facing higher costs. Some, for some extent, will be able to absorb these higher costs, but the longer this conflict lasts, the longer prices remain high, the less they will be able to absorb those costs. So they’ll start passing some of those off to customers,” Santini says.
“It’s going to be a huge pressure on businesses and they may have to make some tough choices around how they operate day to day, the amount of wage increases or people they can employ, or what they end up charging as a price.”
Santini adds that businesses can realistically only raise prices so high before customers aren’t willing to pay those higher costs.
The CFIB report said participating Canadian business owners were already experiencing “insufficient demand” from customers, which largely contributed to the drop in overall business optimism.
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