Canadians expect inflation will rise for at least two years and believe their wages won’t keep up, according to a survey done in August by the Canadian Survey of Consumer Expectations about the third quarter of 2022.
Canadians also are optimistic about labour market conditions, but many expect a recession in the next year, according to the survey performed by the Bank of Canada.
Consumers anticipate that supply chain disruptions will continue and elevated oil prices will drive inflation, the survey noted, adding that while Canadians are aware the Bank of Canada has raised interest rates, they don’t understand how this affects inflation.
Statistics Canada will release the September inflation data on Wednesday. For the month of August, inflation stood at 7% in the country.
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In contrast, expectations for inflation five years from now edged down this quarter and are near pre-pandemic levels. This decline in long-term expectations suggests Canadians anticipate inflation will return to normal.
In interviews, consumers said the Bank of Canada’s rate hikes aren’t having the desired effect. One person said, “Interest rates have been going up quite a bit, but inflation is still very elevated.”
The majority of people surveyed said their wages would not catch up to inflation, and the same for their household finances. The survey also noted that the perceived likelihood of switching to a new job is at a survey high, and workers believe losing their job remains below average. However, around 40% of workers think their wage growth over the next 12 months will be above 4%.
In interviews, workers said working remotely helps them save money on gas. One said, “For work, I prefer a hybrid model because it motivates me to go to the office, but it is much more expensive to drive to work since I live far away.”
The survey found that, despite the positive views about labour market conditions, most consumers think the chance of a recession is at least 50%.
During interviews, several said that Canada may already be in a recession, as they think the economy has not fully recovered from the pandemic and that high inflation and rising interest rates are making things worse. Others, putting more weight on strong labour market conditions, said the economy is in good shape, according to the survey.
More than 80% of respondents are taking actions to cope with higher inflation, and nearly half of respondents reported buying less, and more than one-third are restricting their purchases to necessary items. Many consumers said they would restrict major purchases to critical needs, such as replacing a broken appliance, according to the survey.
The survey noted that Canadians who recently bought a house or did major renovations using a line of credit are more likely to be affected by rising interest rates. Renters and pensioners reported reducing accumulated debt during the pandemic.
The survey also found the share of respondents expecting house prices in Canada to fall over the next 12 months increased significantly this quarter.
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