As a retailer, dealing with inflation is a balancing act – raising prices too much could result in the loss of important customers, but not increasing them could negatively affect your bottom line.
In this article, we provide you with the best inflation pricing strategies to ensure your business finds the perfect balance between cost and profitability. With our expert advice, you will have the tools that your business needs to remain competitive and profitable in the ever-changing economic climate.
Inflation trends in 2025
Inflationary trends in Canada in 2025 are proving to be a significant factor influencing the retail sector, with rising costs and shifting consumer behaviors shaping the industry’s outlook. The year has seen inflation climb to notable levels, driven by policy changes and external economic pressures, which are impacting retail sales, pricing strategies, and supply chains.
The Consumer Price Index (CPI) is the Bank of Canada’s preferred indicator of Canadian inflation, measuring how the cost of goods and services changes over time. CPI data released in February 2025 by Statistics Canada showed that Canada’s inflation rate jumped to 2.6% in that month, marking an eight-month high and exceeding market expectations of 2.2%. This surge was primarily attributed to the expiration of goods and services tax (GST) and harmonized sales tax (HST) breaks, which led to sharp price increases across various categories. Food prices rebounded by 1.3%, while clothing and footwear saw a 1.4% increase. Transportation costs rose by 3%, and shelter expenses climbed by 4.2%, underscoring broad-based inflationary pressures. Without the sales tax exemptions, inflation would have been even higher—estimated at 3% for February (Source: Reuters).
External factors such as U.S.-Canada trade tensions are also exacerbating inflation. The imposition of tariffs by the U.S., coupled with Canada’s retaliatory measures, is expected to further elevate prices in the coming months. Economists predict that inflation will remain above the Bank of Canada’s target range of 1%-3%, complicating monetary policy decisions.
Impact on Retail Sector
The retail industry is grappling with these inflationary pressures, which are affecting both operational costs and consumer spending patterns. Retail sales declined by 0.6% month-over-month in January 2025, with inflation-adjusted sales volumes dropping by 1.1%. Categories such as motor vehicle and parts dealers experienced significant declines (-2.6%), while food and beverage stores saw a notable drop (-2.5%). Although certain segments like furniture and home furnishings (+3.9%) showed resilience, overall retail performance remains subdued.
Higher prices for imported goods due to tariffs are raising costs for retailers, particularly those reliant on cross-border supply chains. This has led to increased prices for consumers, reducing demand for discretionary items. Additionally, supply chain disruptions caused by tariffs are creating inventory challenges, further straining retailers’ ability to maintain stable pricing and availability. (Source: Arcus)
Consumer Behavior Amid Inflation
Inflation is reshaping consumer behavior in Canada as households prioritize essential purchases over discretionary spending. Rising costs for shelter and transportation—key components of the Consumer Price Index (CPI)—are leaving less room for non-essential expenditures. Retailers are responding by emphasizing value-driven offerings and promotions to attract cost-conscious shoppers.
E-commerce sales have also been impacted, declining by 0.9% month-over-month in January after a strong performance in December. This suggests that even online retail is not immune to inflationary pressures, as higher shipping costs and reduced consumer spending weigh on growth.
Outlook for Retail in Canada
The outlook for Canada’s retail sector in 2025 remains uncertain but not entirely bleak. Real GDP growth is projected to reach 1.8%, up from 1.6% in 2024, providing some stability for retail expansion. However, persistent inflationary pressures could lead to further declines in consumer confidence and spending if prices continue to rise.
Retailers will need to adapt strategically to navigate this challenging environment. Emphasizing omnichannel integration, leveraging technology in the grocery, pharmacy and other retail sectors for efficiency, and focusing on affordability will be critical for maintaining competitiveness. While inflation remains a headwind, the sector’s resilience will depend on its ability to innovate and respond effectively to evolving consumer needs.
The 5 best retail pricing strategies during high inflation
With careful planning and adaptation, retailers can mitigate the impact of rising costs while positioning themselves for long-term growth amidst economic uncertainty. Here are some effective strategies to consider during periods of inflation.
Revaluate your budget to absorb costs
There are ways to keep your profit margin intact without simply passing price increases along to the customer. Absorbing costs and adjusting your budget as a consequence may be an option to help battle inflation, rather than solely relying on price increases.
Revisit your budget and identify areas where costs can be reduced temporarily to avoid increasing prices too high, which will help counter the decrease in consumer buying power.
Consider consumer demand and price elasticity
Gaining insight into your company’s position within the market is key. Factors such as consumer demand can have a large impact on pricing strategies.
If your goods or services are in high demand, it is more likely that increasing prices will be successful. In these cases, products have a strong price elasticity, which allows prices to be raised without impacting sales. However, this is not always true.
Your pricing strategy should also take seasonal demand into consideration. During times of year when consumers are financially constrained, raising prices may lead to more consumer resistance.
Adopt digital technologies for long-term resiliency
On the other side of the coin, you may want to consider investing in technology to become more resilient to inflation in the long run. In the short-term, it may therefore be necessary to rely on price increases for this strategy.
According to recent research by Forrester, retailers in 2025 are leveraging technology to better reach and engage customers in novel ways during inflation. The logic here is partly due to the realities of deflationary technology, the idea that the cost of technology decreases in proportion to its usage.
One such technology that retailers are adopting is smart shelf tags. This electronic shelf label technologyseamlessly provides consumers with real-time access to price comparisons and available promotions, giving retailers a real edge when it comes to meeting today’s demands for accurate and effective pricing information across multiple locations and channels amidst an ever-changing price landscape.
Monitor your competitors’ pricing
Competitive pricing helps ensure that you always offer the best value for your customers. Monitoring your competitors’ pricing strategies will help inform your own decision-making process.
Knowing when competitors are likely to increase or lower their prices can be beneficial when setting your own prices. When inflation is high and competitors are changing their prices, you should be keeping an eye on their pricing strategies and making informed adjustments.
Implement a dynamic pricing model
A dynamic pricing model can be a great choice for companies during times of inflation. This model can help businesses maintain their profitability by automatically adjusting prices in real-time according to changes in different factors, such as supply chain costs and, as outlined above, market demand and competition. It is most effective when implemented in tandem with a pricing automation strategy, which relies on technology such as digital displays to implement the dynamic pricing model. This approach reduces the manual effort required for price adjustments while ensuring accuracy and competitiveness.
Tips for making price adjustments during inflation
Here are some tips to simplify making price changes during times of inflation:
- Monitor the inflation rate: Review the inflation rate regularly and make sure you are aware of any changes that may affect the cost of goods and services.
- Set pricing thresholds: Define thresholds for when prices should be adjusted to counteract the effects of inflation.
- Consider the impact of price changes: Consider the potential impact of price changes on current and potential customers.
- Communicate pricing changes: Let customers know about any pricing changes and explain why the changes are necessary.
- Use discounts or promotions: Offer discounts or promotions to offset the effects of inflation on prices. Share promotions with customers on social media and in-store using digital signage or point-of-purchase displays.
JRTech Solutions can help you become resilient during inflation
Retailers can face tough challenges when inflation rates are high, due to increased production costs and reduced consumer spending. For continued profitability, it’s always a good idea to revaluate and optimize your pricing strategies.
JRTech’s electronic shelf labels (ESLs) provide an optimal solution for retailers to become more resilient in the face of inflation. Automating pricing with ESLs not only eliminates the need for manual price changes, but also provides valuable product data to your employees and consumers.
Contact us now to learn more about our products and start optimizing your pricing strategy today.
