A growing number of companies estimate that it will take at least four years before inflation returns to the 2% target, indicates the latest quarterly survey from the Bank of Canada.
These expectations of high inflation will complicate the task of the Bank of Canada which believes that the inflation target could be reached much sooner and which is considering starting to reduce its key rate.
Consumers are also skeptical about the return of inflation to the 2% target, according to the Bank of Canada survey. They believe that high rent prices and public spending will support high inflation.
High prices for energy, food and housing will prevent inflation rates from falling more quickly, according to the survey of 700 to 800 Canadian business leaders in late 2023.
Fewer companies are willing to raise their prices more than they usually do, because demand is weakening. Those who intend to continue raising their prices more often and more significantly cite wages, past increases in their input costs and the need to restore their profit margins.
On the positive side, a growing number of companies find that it is easier to hire and that salary pressures are decreasing. The salary increase they expect to give over the next twelve months is decreasing, but remains high, at more than 4%, while the historical average is around 3%.
Unsurprisingly, businesses say they are suffering from tighter credit conditions. Businesses in the retail, accommodation and food services, and entertainment sectors are most affected. Lenders are indeed cautious because they anticipate that consumer spending will continue to decline.