Businesses and consumers are expecting inflation to slow faster than they previously thought but as high interest rates weigh on the economy, they’re also adjusting their finances to account for a slowdown.
The surveys — which ask respondents what they think the annual inflation rate will be one, two and five years from now — show expectations for future inflation are falling. This comes as the actual inflation rate has been slowing for months, reaching 5.2 per cent in February after peaking at 8.1 per cent last June.
However, businesses and consumers continue to expect inflation to remain above two per cent until at least 2025.
The Bank of Canada closely monitors inflation expectations in the economy because inflation can stay high if businesses and consumers continue to expect prices to rise rapidly.
The central bank is likely encouraged to see inflation expectations falling, but the surveys show business and consumers still expect inflation to be higher than the Bank of Canada’s forecasts.
It’s currently projecting inflation to fall to about three per cent by mid-year and back down to two per cent in 2024.
The central bank aggressively raised interest rates starting in March 2022 to clamp down on rapidly rising prices. It’s currently holding its key interest rate steady at 4.5 per cent and doesn’t anticipate raising it again, so long as inflation cools fast enough.
The Bank of Canada will make its next interest rate decision on April 12. In a client note sent out Monday, TD director of economics James Orlando said the survey responses should encourage the Bank of Canada to stay on the sidelines.
With its key interest rate at the highest level since 2007, higher borrowing costs are expected to further constrain consumers and weigh on business activity in the coming months.
According to the survey, more consumers are reporting that they’re worse off as a result of higher interest rates and inflation than in the last survey, conducted in the fourth quarter of 2022.
Overall, 56.5 per cent of consumers say high inflation has made them “much worse off” or “somewhat worse off.” Meanwhile, 31.3 per cent say they’re worse off because of high interest rates.
The central bank’s surveys reveal consumers with variable-rate mortgages, Indigenous people, people with disabilities and racialized people are more likely to report being hurt by high inflation and interest rates.
With a potential recession looming, the surveys show consumers expect to pull back on spending and businesses anticipate sales will slow.
The Bank of Canada found almost half of firms have adjusted their business plans to account for a recession. And consumers are planning to spend less on activities such as travel and going to restaurants over the next year.
Orlando said the change in behaviour is a sign that the economy is in fact headed toward a slowdown.
“If consumers and businesses adjust their behaviour in preparation of a slowdown, it becomes a self-fulfilling prophecy. This implies that the string of positive surprises won’t last much longer,” Orlando said.
So far, the economy has been relatively resilient amid high interest rates. Statistics Canada reported earlier this week that real gross domestic product rose by 0.5 per cent in January after declining by 0.1 per cent in December. Its preliminary estimate for February suggests another increase of 0.3 per cent.
The labour market in particular has shown strength, with the economy continuing to add jobs even as recession talk bubbles.
And while labour shortages are still the second most important issue facing firms, the surveys show signs of easing in the labour market, with businesses no longer anticipating rising wages to push inflation higher.
The Bank of Canada has raised concerns over the tight labour market and rising wages fuelling inflation. Canada’s unemployment rate was hovering near record lows in February, sitting at five per cent. Meanwhile, wages were up 5.4 per cent from a year ago.
This report by The Canadian Press was first published April 3, 2023
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
