New surveys from the Bank of Canada show consumers have become more pessimistic about inflation in the short run, while business expectations for inflation have eased.
The Bank of Canada’s third-quarter business outlook and consumer expectations surveys on Monday showed inflation expectations are still high.
With inflation well above the bank’s two per cent target, the central bank is monitoring how inflation expectations develop, over fears that elevated expectations could feed into even higher prices and wages.
In August, the annual inflation rate was 7.0 per cent.
The consumer survey showed inflation expectations for one to two years ahead have gone up since the last survey, as consumers anticipate supply chain disruptions to persist and oil prices to remain high.
Meanwhile, consumer expectations for inflation five years from now have eased to near pre-pandemic levels. Still, consumers were more divided this quarter about where inflation will be in the long run.
The business outlook survey showed business expectations for inflation over the short-term have eased, but remain above the Bank of Canada’s target.
The survey also found businesses expect to raise prices more slowly and wages increases to soften.
In the long run, businesses expect inflation to return closer to the bank’s two per cent target.
The consumer survey also showed that while most consumers understand the Bank of Canada aims to reduce inflation with interest rate increases, a minority of them expect it will accomplish that goal.
The surveys also showed most consumers and businesses expect Canada to enter a recession.
When asked what they think will most likely trigger a recession, consumers said wages not keeping up with inflation, while businesses said rising interest rates.
The Bank of Canada will make its next interest rate announcement on Oct. 26, when it is expected to deliver another interest rate hike.