Canadian businesses and consumers are a little less worried about inflation and interest rates than before, but remain worried about what the future holds.
Canadians are now hopeful that their central bank will manage to bring inflation within its target range of 1% to 3% within two years, the Bank of Canada reported Friday on the sound base Survey on consumer expectations. Carried out from the beginning of August to mid-September, the quarterly survey reveals, however, that the cost of living and interest rates will continue to weigh on their spending and their confidence more than usual.
Almost half of respondents still think that a recession awaits the country during the next year. Three in five Canadians say they will continue to cut back and postpone spending due to the uncertain economic environment and because they anticipate the price of essential purchases and housing will continue to rise. Strong public spending and housing costs are seen as the main causes of persistent inflation.
The pace of the expected increase in prices should slow down over the next year, particularly in terms of rents, a sector for which an increase of around 9% was still predicted at the end of spring, but which is now believed to be could be less than 6%. Home purchase intentions are neither lower nor higher than usual (around 14%), but they could be 50% higher if interest rates were lower. Especially if that drop in mortgage costs was at least two percentage points.
Less than 12% of respondents say they fear losing their job in the next year. As for wages, it is expected that it will increase less quickly than inflation. This drop in salary expectations is particularly marked among young people aged 18 to 24, where we have fallen, in the space of a year, from an expected annual increase of 10% to less than 3%.
The voice of business
This perception that Canadian consumers have of reality is quite similar to that of their employers, if we are to believe theBusiness Outlook Surveyanother quarterly survey from the Bank of Canada carried out in August and the results of which were also revealed on Friday.
Here too, companies say they expect the central bank to be able to bring and maintain inflation within its target range, perhaps even within a year. But here too, it is said that in the meantime, the slowdown in economic activity, the increase in the cost of inputs and the high interest rates will slow down production, hiring and investment.
If order books are starting to fill up a little, it is clear that customers continue to look for cheaper products and discounts. In this context, companies have continued, for a year, to announce investment and hiring plans that are lower than usual. If we think about investing, it is mainly to replace or repair equipment that we already have rather than to increase our production capacity or improve our productivity.
We have not seen such a low proportion of businesses complaining about a labor shortage since the darkest days of the pandemic. Nearly half of respondents predict that the increase in their labor costs will be lower this year than it was last year, and only 12% think the increase could be higher. .
These two Bank of Canada surveys “offer a glimmer of hope because they demonstrate a certain improvement in the perception of things,” said Maria Solovieva, economist at TD Bank, in a brief analysis.
They should convince the central bank that the Canadian economy will need another reduction in interest rates of at least 0.25 percentage points in its next monetary policy decision, in two weeks, observed Shelly Kaushik, economist at the Bank of Montreal. And who knows? Maybe even by 0.5 points, depending on the next inflation statistics, which are due to be released on Tuesday.
Forced to recognize that its war against inflation, waged by raising interest rates, had largely achieved its goal and that it now risked stifling the economy, the Bank of Canada has already made three consecutive cuts of its key rate, by 0.25 percentage points each, since June.