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Fight against inflation | Consumers are skeptical



Despite its unprecedented efforts to get its message across, the Bank of Canada is struggling to convince consumers that it will succeed in controlling inflation.

The results of the central bank’s quarterly survey of consumer expectations released on Monday reveal a great deal of skepticism about its ability to fight inflation.

Although the majority of respondents know that interest rate hikes are intended to reduce inflation, “far fewer expect these measures to work,” notes the Bank of Canada.

Since it undertook to raise its key rate, the central bank has multiplied the opportunities to explain itself to the most diverse audiences and even on social networks in order to convince Canadians that inflation will not continue to rise. ‘increase.

In its investigation, the central bank was told that its efforts were not having the desired effect. Inflation showed signs of easing in August, but annual price inflation remains very high at 7%.

In fact, consumers expect prices to rise further over the next two years, which may help fuel inflation and make the central bank’s job even harder.

More pessimistic

Overall, consumers are more pessimistic than in the previous quarter on the evolution of the economy. In fact many of them believe that Canada is already in a recession, even though it is not.

The others estimate the probability of a recession at 50%, because wages do not keep up with inflation, high prices and rising interest rates.

The Bank of Canada is raising rates to cool an overheated economy, which seems to be working. The vast majority of respondents to his survey have cut spending and are running bargains. “Many consumers believe now is not a good time to make major purchases because prices are high, choices are limited, delays are long, and the likelihood of a recession occurring is high,” summarizes the investigation.

Employment: no worries

The survey indicates that consumers are worried about their purchasing power, but they are not worried about losing their jobs.

Voluntarily changing jobs is still considered possible and many say they did so in order to get a better salary.

Workers, however, expect larger wage increases. About 40% of them believe that their salary will increase by more than 4% over the next few months.

These expectations are higher among those who are forced to return to work in the office. Interestingly, the ability to telecommute lowers salary expectations, because it saves them gas. “For work, I prefer a hybrid model because it motivates me to go to the office, but since I live far away, it costs me a lot more to drive to get there”, according to a respondent quoted in the survey. .

Companies always want to invest

Although their level of confidence in the future has dropped, Canadian companies have not yet shelved their investment plans nor do they expect to make any layoffs in the coming months, according to the report. Business Outlook Survey conducted four times a year by the Bank of Canada.

For the first time in more than a year, companies believe their supply chains have improved and the labor market is showing signs of easing.

Apart from those related to the housing sector, most companies plan to hire if they find the workforce they need.

Despite the continuing rise in interest rates, investments are still on the menu for companies, especially those with capacity constraints, who want to turn to automation to compensate for the scarcity of labor. .

More uncertainty

Like consumers, the companies surveyed estimate the probability of a recession at 50%, which would be triggered by the rise in interest rates and the increase in prices which slow down consumption.

Businesses believe inflation will remain high, but unlike consumers, they expect rising prices to be under control over the next three years.

They themselves expect to raise prices less rapidly than during the pandemic, when consumers were willing to pay more, and they believe wage pressures will ease.

The information generated by these two surveys will guide the Bank of Canada’s future interest rate decisions. The next announcement is scheduled for October 26, and a further 50 basis point hike is expected by observers, which would bring the key rate to 3.75%.

No province safe

All Canadian provinces will feel the effects of rising interest rates, inflation and the deterioration of the global economy, say Desjardins economists, who predict that the Canadian economy will plunge into a recession in early 2023.

As for the provinces, some will suffer more than others. Ontario should be among the hardest hit by the economic slowdown, due to its greater vulnerability to the real estate market. British Columbia and the Maritimes are also more fragile for the same reasons and should fall into recession.

Conversely, the oil-producing provinces (Alberta, Saskatchewan and Newfoundland) will post the best performance in Canada. As for Quebec, it could narrowly avoid a recession, predict the economists of Desjardins who expect a rise in unemployment and an anemic growth of 0.1% in 2023.

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