The two reports — known as the Survey of Business Outlook and the Canadian Survey of Consumer Expectations — are the result of the central bank’s quarterly poll of Canadian businesses and consumers about their outlook on what’s happening in Canada’s economy.
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While the findings differed in many ways, the overarching theme of both was inflation and its impact on buying and selling, hiring and firing. The main takeaway from the business survey was that most businesses are seeing higher sales than they did earlier in the pandemic as economic activity returns to some sort of normalcy. However, demand continues to outstrip supply in nearly all types of businesses, which is both a factor and contributor to the high inflation currently plaguing the economy. Almost two-thirds of businesses told the central bank they are seeing labor shortages. Almost half – 43 percent – say they are experiencing bottlenecks in their supply chains and are taking longer to resolve than previously expected. Businesses expect Canada’s inflation rate to still be more than five per cent a year from now, and even more than four per cent two years from now. However, five years from now, the survey shows they expect inflation to be back within the central bank’s target range of between 1% and 3%. It was a similar story on the consumer side. Long-term inflation expectations rose from 3.2 percent to 4 percent, while short-term expectations rose to 6.8 percent, from 5.1 percent in the previous quarter. “Consumers have clearly noticed recently [consumer price index] issuance and high food and gasoline prices,” CIBC economists Andrew Grantham and Karyne Charbonneau said of the data. “Uncertainty around the evolution of inflation has increased.”
Wages are expected to increase
On the employment front, on average, business owners expect their labor costs to increase by 5.8 percent this year. That’s significantly higher than the two per cent wage rises consumers told the bank they expected. “Employees do not expect their wage gains to keep up with inflation,” the bank said, adding that those in the private sector believe their wages will rise more this year than those in the public sector. TD Bank economist Leslie Preston said the survey shows just how much of a concern inflation is on the minds of ordinary consumers. “This survey suggests that consumer spending in real terms is likely to slow in the coming months as wages fail to keep pace with inflation and households are already forced to save,” he said, adding that expectations of high inflation are a source of concern for low-income consumers in particular, who are adjusting to high inflation by cutting back on spending, postponing large purchases, seeking out discounts more often and buying more affordable items.”
