Most consumers and businesses expect a recession. Disagreements on Inflation: BoC

A new Bank of Canada survey shows that most consumers and businesses expect Canada to enter a recession, but are divided on short-term inflation.

Consumers are becoming more pessimistic about inflation in the short term, but business expectations about inflation have eased, according to the third-quarter business outlook and consumer expectations survey released on Monday.

Inflation is well above the bank’s target of 2%, and the central bank has questioned how much inflation expectations it has set amid concerns that rising inflation will lead to further increases in prices and wages. Central banks are watching how things develop.

The annual inflation rate for August was 7.0%, the latest figure available. Statistics Canada is due to release his September inflation data on Wednesday.

Sal Guatieri, senior economist at BMO, said the widespread perception among businesses that Canada was entering a recession was bad news, but that inflation expectations were headed in the right direction.

“The good news, especially for the Bank of Canada, is that the same banks are seeing price and wage pressures ease,” Guatieri said.

For Canadians generally, consumer surveys show inflation expectations over the next 1-2 years are up from previous surveys as consumers expect supply chain disruptions to continue and oil prices to remain high. was shown.

Consumers still believe these external factors are keeping inflation high, but views on what domestic factors influence inflation are now more polarized, the bank said. ing.

“Some believe that high government spending and price gouging by domestic retailers are also playing a role,” the Bank of Canada said.

To combat high inflation, nearly half of consumers report buying less on sale and more merchandise.

About one in five consumers say they haven’t changed their shopping habits because of high inflation.

Meanwhile, consumer expectations of inflation five years from now have fallen to near pre-pandemic levels. Still, consumers were even more divided this quarter about where inflation is headed over the long term.

The Business Outlook Survey shows business expectations of near-term inflation have eased but remain above the Bank of Canada’s target.

The survey found that businesses expect inflation to rise more moderately and wage growth to slow.

Over the long term, companies expect inflation to approach the bank’s 2% target.

The survey also showed that most consumers and businesses expect Canada to enter a recession.

When asked what would most likely trigger a recession, consumers said wages were not keeping up with inflation and businesses said interest rates were rising.

Consumer surveys show that most consumers understand that the Bank of Canada aims to keep inflation low by raising interest rates, but a minority expect it to achieve that goal. I understand too.

Consumer perceptions of banks’ inflation targets are also rising in 2022, especially among consumers who are unaware that Canada has inflation targets. Those who didn’t know thought the target was around 5%, while those who knew there was a target said it was closer to 3%.

The Bank of Canada is due to make its next rate announcement on October 26th, when another rate hike is expected.

canadian press