The refocusing of concerns from inflation to recession, observed on the financial markets, does not transpire in the most recent surveys conducted among businesses and consumers. Both groups expect persistently high inflation and sustained economic activity. This does not prevent a rise in uncertainty.
The inflationary outlook remains bullish, over a one-year and two-year horizon, to reach a new historic high. In the Bank of Canada’s Survey of Consumer Expectations for the Second Quarter of 2022, conducted from April 28 to May 13 with follow-up interviews in June, many see continued strong essential expenses such as food, gas and rent. “The widespread perception is that inflation is now more widespread than before. »
Respondents attribute the blame for this inflationary slippage to supply chain issues, the COVID-19 pandemic and high government spending against the backdrop of the war in Ukraine. And they don’t expect these issues to go away anytime soon.
In addition, confidence is declining in wage growth and credit market conditions. Workers do not believe that wage increases will keep up with inflation. Added to this erosion of purchasing power is a confidence indicator relating to credit conditions, also below the historical average, under the impetus of the rise in interest rates. Consumers foresee more difficult access to credit and an increased likelihood of not being able to repay their debts, we can read.
Still, they expect to spend more over the next 12 months, fueled by excess savings built up during the pandemic. “As in the first quarter of 2022, they intend to spend about a quarter of this surplus during 2022 and 2023.” That said, inflation will take its toll with expected purchasing volume falling below effect of an increase in prices greater than that of expenditure. “Result: they will get less for their money. »
However, consumers are showing strong confidence, above the historical average, in labor market conditions and economic conditions in general. However, the rise in the cost of living has an influence on trade-offs. Among respondents aged 18 to 54 who are not in the labor force, about half would start looking for a job if wages were better. For their part, “workers approaching retirement age have indicated that the high level of inflation could force them to continue working longer, because they are worried that their pension will not keep up with the increase in the cost of life “.
In response to high inflation, more than half of the out-of-work force group of respondents said they would consider looking for a job if they had the option of telecommuting or flexible working arrangements.
And the companies?
The Bank of Canada also released its Business Outlook Survey, second quarter 2022, conducted between May 9 and May 27. It shows that pressures on production capacity are set to remain high, with companies expecting faster increases in wages and prices of inputs and outputs. However, the improvement in the sales indicators “suggests a continued increase in sales in the future, reinforcing their intentions to invest more and to hire”.
We observe that the uncertainty regarding the economic situation appears as an “emerging theme” in this edition of the Survey. “For most companies, this uncertainty poses risks to their outlook, but it has not yet impacted their business or their sales expectations. »
There is talk of a slowdown in sales, which would come after a strong rebound associated with the end of restrictions and containment measures. However, “this slowdown would largely be due to a shift in demand towards normal conditions”. The companies consulted nevertheless foresee strong growth, citing the improvement in their order books and increased demand for information from Canadian and foreign customers. And while they admit that the shortage of labor will weigh on this growth, the pressure on production capacity “suggests the presence of excess demand in the economy, due to a sustained growth of demand combined with difficult conditions on the supply side”.
Cost pressure remains. The price of inputs and outputs has already gone up quite noticeably over the past 12 months, and it’s not over. Many companies still believe that these prices will increase significantly and at a faster rate. The main causes would be a higher bill in terms of subcontracting, insurance, rents and interest rates, supply problems and wage increases.
And the fear of a recession in all this?