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Jul 25, 2018

Loblaw warns trade war could hit Canadian customers

Loblaw says tariff war with U.S. will increase cost pressures

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Canadian grocery shoppers are about to experience what a trade war feels like.

Loblaw Cos. (L.TO), the country’s largest grocer, said it expects prices to rise in the second half of the year as retaliatory tariffs on U.S. imports come into effect. While the company couldn’t quantify the impact, it said the measure adds to higher transportation costs and wages, as well as a weaker currency.

“I think transportation in addition to tariffs is impacting us in an increasingly meaningful way and we see that continuing for some period of time,” Chief Executive Officer Galen G. Weston said on the company’s earnings call Wednesday. “We’re committed to delivering value to our customers as often as possible with our pricing strategies, but there are limits.”

About $16.6 billion of levies ranging from steel and aluminum to soya sauce and hair lacquer came into effect on July 1 as Canada’s response to President Donald Trump’s metals tariffs. While fierce competition with rivals including Metro Inc. (MRU.TO) and Walmart Inc. (WMT.N) has so far kept inflation muted as companies cut costs, Weston predicted stronger pricing pressure across the industry.

“We don’t think it’s going to be meaningful, super significant, but it certainly will be higher than what it is today,” he said.

Toronto-based Loblaw fell 0.7 per cent to $68.31 at 12:44 p.m. The shares are little changed on the year.

Companies in other fields are also bracing for a ripple effect of tariffs. That includes Toromont Industries Ltd., which operates Caterpillar Inc. dealerships in Manitoba, Ontario and Eastern Canada.

“When you look at the environment with steel and aluminum, the results of tariff change could impact our pricing,” Chief Executive Officer Scott Medhurst said on an earnings call Wednesday. “So we’re monitoring that closely and working with our supply chain on that to ensure we understand it fully.”

©2018 Bloomberg L.P.