A pair of new reports from Bank of Canada just to increase inflationary expectations of Canadian businesses and consumers.
In its business outlook survey released on Monday, the central bank said businesses’ expectations for short-term inflation had increased and companies expect inflation to be high in the near term. longer than the previous survey.
“Many companies continue to report plans to raise wages to attract and retain workers,” the bank said in its report, which suggested businesses expect wages and prices to increase with faster speed.
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“Additionally, more and more businesses are referring to the rising cost of living as an important source of wage increases. Nearly half of companies expect their pay growth to stay above pre-pandemic levels over the next 12 months.”
The report also said businesses expect sales growth to start to slow and return to normal after a rapid recovery from the pandemic.
According to the report, labor shortages and supply chain bottlenecks continue to be key issues with supply chain problems taking longer to resolve than previously anticipated.
In response, the business outlook survey said businesses are reconfiguring their supply chains and holding more inventory than usual, just as the majority of companies are planning to invest and hire more.
However, the Bank of Canada said longer-term expectations for corporate inflation remained steady in the 2-3% range.
Meanwhile, the Bank of Canada’s survey of consumer expectations showed consumer expectations for inflation also increased along with worries about food, gas and rent prices.
The consumer report also said higher inflation expectations and rising interest rates are affecting consumer confidence.
The bank notes that lower-income Canadians and older adults are more concerned with grocery prices and rent than younger respondents and higher-income households.
Consumers, especially those on lower incomes, are adjusting to high inflation by cutting spending, postponing large purchases, seeking discounts and choosing cheaper alternatives. .
“Some consumers refer to sticking to a tight budget for groceries by buying more conventional products or not buying items deemed less necessary. Some people rely more on gardening for food or use cheaper forms of transportation, like cycling,” the report said.
However, the report also shows that most respondents consider the Bank of Canada to have the credibility and tools to bring inflation back under control and their confidence in its ability to achieve it. The bank’s inflation target has not changed significantly since before the pandemic.
Statistics Canada reported last month that the annual inflation rate in May rose to 7.7%, the highest since 1983.
The Bank of Canada raised its key interest rate target in an attempt to bring inflation back to its 2% target level.
The central bank has raised rates three times this year to bring its key policy rate to 1.5%. Its next interest rate decision is set for July 13, and many private-sector economists expect the Bank of Canada to raise its benchmark interest rate by three-quarters of a percentage point.
Nathan Janzen, assistant chief economist at Imperial Bank, said in a note Monday morning that the release from the central bank “only increases the odds” of a 75 basis point move into next week.
– with files from Craig Lord of Global News
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