Inflation expectations will impact consumer spending: Bank of Canada report

Many Canadians plan to cut spending amid expectations of a further rise in inflation, according to a new Bank of Canada (BoC) report.

The country’s national bank conducted a survey of consumer expectations between April 28 and May 13. Follow-up telephone interviews were conducted by the market research firm Nielsen from June 3 to June 10. 

The survey found consumers’ expectations for inflation have risen, alongside concerns about prices for food, gas and rent. Short-term expectations are at record-high levels. Long-term inflation expectations increased significantly in the second quarter of 2022, returning to the levels they were at before the COVID‑19 pandemic.

Most people believe the Bank of Canada can achieve its inflation target. However, some think the process of bringing inflation down will be difficult.

Expectations for higher inflation and rising interest rates are affecting consumer confidence, BoC said. In response to such factors, Canadians plan to cut spending. They are seeking out more-affordable options when shopping.

Consumers’ confidence is influenced by their views about different aspects of economic life, ranging from expectations about the economy in general to their own labour situation and earnings, household finance and credit conditions, the online report noted.

Lower-income Canadians and older individuals are more concerned about grocery prices and rent than younger respondents and households with higher incomes are. Younger people are more likely to be concerned about house prices than other groups because they may be considering buying their first house.

People now frequently shop around to find better prices, and they stockpile items that are on sale, the report said. Some consumers mentioned sticking to a strict budget for groceries by buying more generic products or not buying items deemed less necessary. Some are relying more on gardening for food or using cheaper forms of commuting, like biking.

Consumers also reported that interest rate hikes would directly affect their spending. When asked what actions people would take in response to an increase of 1 percentage point, most consumers who indicated they would take action said they would cut spending, increase their savings, postpone major purchases and pay down debt.

Few consumers expect to make major purchases—such as a house, condo or furniture — earlier.

People anticipate that wage gains will remain modest. However, workers in the private sector have higher expectations for wage growth than those in the public sector.

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