Canadian corporate mark-ups surged in 2021, fuelling inflation

Analysis shows Canadian companies internally turbo-charged the inflation shock imported from outside Canada.

In a time of inflation, a company that can pass price hikes on to customers will do fine. And one that hits customer resistance might perish.

But those that can pass on costs and add just a bit of garnishment while people are looking the other way can really flourish.

And many were flourishing in 2021 as COVID-caused shipping bottlenecks and factory closures created shortages while a new Russian embargo set oil prices soaring, Statistics Canada data shows.

Mark-up on operating costs rose from 10 to 15 per cent

In 2021, mark-ups on company operating costs surged as Canadians learned to live more poorly and Conservative leader Pierre Poilievre deflected Canadians’ anger onto the carbon tax.

Mark-up is profit divided by operating costs. A company with a $10 million profit on a $100 million operation has a mark-up of 10 per cent, which was the general rate for corporate Canada from about 2006 to 2017, according to the analysis by DT Cochrane, chief economist at the Canadian Labour Congress.

But Cochrane, in his chart at top, shows mark-ups surged to a new level, about 15 per cent, in 2021, where they have remained since.

Corporate Canada’s operating costs did rise with an inflation wave from factors outside Canada, as shown in Cochrane’s chart below, which compares actual corporate expenses with their historic trendline. Corporate costs started to move ahead faster than historic rates around 2021.

Canadian companies turbo-charged inflation imported from outside Canada

But mark-ups didn’t stay stable, keeping companies on pace with inflation. They rose, accelerating inflation.

Perhaps external factors pushed that company with a 10 per cent mark-up on a $100 million operation to costs of $110 million. But the data shows such a company didn’t increase profit to $11 million, maintaining that 10 per cent mark-up and keeping profit on pace with inflation.

Instead, on the new $110 million cost base that company was able to hike prices enough to push mark-up to 15 per cent, or $16.5 million profit.

Cochrane’s analysis shows corporate Canada internally turbo-charged the external inflation shock. And he calculates, since 2021, the shift in mark-up had added $741 billion more to prices paid by customers.