Business and consumer inflation expectations up: Bank of Canada survey
Labour shortages and supply chain bottlenecks continue to be key issues with supply chain problems taking longer to resolve than previously anticipated.
A pair of new reports from the Bank of Canada point to rising inflation expectations by Canadian businesses and consumers.
In its business outlook survey released on Jul. 4, the central bank said businesses’ expectations for near-term inflation have increased, and firms expect inflation to be high for longer than they did in the previous survey.
“Many firms continue to report plans for raising wages to attract and retain workers,” the bank said in its report which suggested businesses expect wages and prices to grow at a faster pace.
“In addition, a growing number of businesses mentioned the rising cost of living as an important source of wage growth. Nearly half of firms anticipate their wage increase will remain above pre-pandemic levels beyond the next 12 months.”
The report also said businesses expect sales growth will begin to slow and return to normal following the rapid recovery from the pandemic.
Labour shortages and supply chain bottlenecks continue to be key issues with supply chain problems taking longer to resolve than previously anticipated, according to the report.
In response, the business outlook survey said businesses are reconfiguring supply chains and holding more inventory than usual as well a majority of firms are planning to invest and hire more.
However, the Bank of Canada said longer-term expectations for inflation by businesses remain stable between two and three per cent.
The report also found that most respondents think the Bank of Canada has the credibility and tools to bring inflation back under control and their belief in the bank’s ability to achieve its inflation target has not changed materially since before the pandemic.
Statistics Canada reported last month that the annual pace of inflation for May rose to 7.7 per cent, its highest level since 1983.
The Bank of Canada has been raising its key interest rate target in an effort to bring inflation back to its target of two per cent.
The central bank has raised rates three times this year so far to bring its key policy rate to 1.5 per cent. Its next interest rate decision is set for July 13 and many private sector economists expect the Bank of Canada to raise its key rate by three-quarters of a percentage point.