OTTAWA-
A pair of new reports from the Bank of Canada point to rising inflation expectations by Canadian businesses and consumers.
In its business outlook survey released on Monday, The central bank said business short-term inflation expectations have risen, with businesses expecting inflation to be high for longer than in 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 companies expect wages and prices to grow at a faster pace.
“In addition, a growing number of companies cited cost-of-living increases as a major source of salary growth. Nearly half of companies anticipate that their salary increase will remain above pre-pandemic levels beyond the next few years.” 12 months”.
The report also said that companies expect sales growth to start to slow and return to normal after the rapid recovery from the pandemic.
Labor shortages and supply chain bottlenecks continue to be key issues, with supply chain issues taking longer to resolve than previously anticipated, according to the report.
In response, the business outlook survey said companies are reconfiguring supply chains and holding more inventory than usual, plus most companies plan to invest and hire more.
However, the Bank of Canada said that companies’ long-term inflation expectations remain stable at between two and three percent.
Meanwhile, the bank’s Canadian survey of consumer expectations suggests that consumer inflation expectations have also risen on concerns about food, gas and rent prices.
The consumer report also said that expectations of higher inflation and rising interest rates are weighing on consumer confidence.
The bank noted that lower-income Canadians and older people are more concerned about grocery prices and rent than younger respondents and higher-income households.
Consumers, especially those with lower incomes, are adjusting to high inflation by cutting back on spending, postponing major purchases, seeking discounts and cheaper alternative options, he said.
“Some consumers mentioned sticking to a strict grocery budget by buying more generic products or not buying items considered less necessary. Some rely more on gardening for food or use cheaper forms of transportation, such as biking,” the report says.
However, the report also found that most respondents think the Bank of Canada has the credibility and tools to bring inflation back under control and their belief in the bank’s ability to achieve its inflation target has not changed substantially since before the pandemic.
Statistics Canada reported last month that May’s annual pace of inflation rose to 7.7 percent, its highest level since 1983.
The Bank of Canada has been raising its key interest rate target in an effort to bring inflation back to its two percent target.
The central bank has raised rates three times this year so far to bring its key policy rate to 1.5 percent. Its next interest rate decision is set for July 13, and many private-sector economists expect the Bank of Canada to raise its key rate by three-quarters of a percentage point.
This report from The Canadian Press was first published on July 4, 2022.