Why you’re going to spend more for less this year

Hey consumer! You’re not going to like this. You’re going to be spending more, but it won’t be for a larger bag of goods.

Canadian retailers will sell fewer products at higher prices this year, according to CIBC Capital Markets’ retail outlook. The change is thanks, in part, to an on-going rise in energy prices, which is partially due to high demand this bitterly-cold winter, and a weaker Canadian currency.

“The next two years will see a gradual upturn in inflation, in part a reflection of a weaker Canadian dollar, but also capturing higher energy costs and a tobacco tax hike,” the report states. “So quarterly growth rates will see a trend towards selling less for more: higher prices, but leaner growth in real volumes,” the report notes.

Inflation remains a thorn in the side of the Bank of Canada, despite an unexpected 1.5 per cent jump in January . In 2013, inflation languished under the Bank of Canada's target range of 1 per cent to 3 per cent in five out of 12 months, according to Statistics Canada.

Lower prices were due, in part, to the intense competition heating up across Canada's retail industry. Last year was a tough one for Canadian retailers as they adjusted to increased foreign entrants, industry consolidation and consumers hooked on steep discounts.

"Target's entry to Canada in early 2013 led retailers such as Wal-Mart and Loblaws to keep prices down," notes the University of Guelph's 2014 Food Price Index.

Retailers to feel the pain

Higher prices will be a financial blow to shoppers, seeing as wage increases and labor gains were almost non-existent in 2013. And 2014 will won't see much padding added to Canadian wallets.

"In nominal terms, disposable income growth has been slowing, rising by only 3.6 per cent last year, the weakest non-recessionary showing since 1996," CIBC says.

It remains unseen whether higher prices will actually help retail profits.

“Squeezing margins, competitive pressures in some sectors will limit the ability of retailers to pass on all of their cost-of-goods increases to their customers,” the report notes.

Even with higher prices, it's no guarantee shoppers will bite.

“I don’t know if it will help retailers,” Avery Shenfeld, chief economist at CIBC told Yahoo Canada Finance. “They’re paying more for goods as they sell the goods, it’s not a great story for buyers or sellers.”

And the competition isn't going anywhere with massive U.S. brands like Nordstrom and Saks about to expand into the Canadian market.

The maturation of Canadian e-commerce, isn't helping either. In fact, the holiday shopping season saw more consumers take to the Internet rather than add to foot traffic in stores. A recent survey by the global retail advisory group J.C Williams Group found that participants who purchased goods online spent more than double than those at traditional bricks and mortar retailers, representing $726 in spending compared to $382.

Overall, consumer spending on big-ticket items -- think cars and furniture -- is expected to wane, according to a recent forecast.

"Real household spending is forecast to grow by about 2.3 per cent per year this year and next," the Conference Board of Canada said in a release.

With higher prices, steeper financing costs and limited growth in disposable income, it'll be a hard sell for retailers hoping to sell less for more.