BoC: economy softening
The Canadian Press – Apr 3, 2023 / 9:00 am | Stories: 419349
Photo: The Canadian Press
New reports from the Bank of Canada suggest business and consumer expectations on inflation are moderating, but a potential recession continues to weigh on economic outlooks.
The surveys released today show inflation expectations are easing, but consumers and businesses continue to expect inflation to remain above two per cent until at least 2025.
The Bank of Canada closely monitors inflation expectations in the economy because inflation can stay high if businesses and consumers continue to expect prices to rise rapidly.
The central bank has aggressively raised interest rates since March 2022 to clamp down on rapidly rising prices. It’s currently holding its key interest rate steady at 4.5 per cent and doesn’t anticipate raising it again, so long as inflation cools fast enough.
With its key interest rate at the highest level since 2007, higher borrowing costs are expected to further constrain consumers and weigh on business activity in the coming months.
The central bank’s surveys reveal consumers with variable-rate mortgages, Indigenous people, people with disabilities and racialized people are more likely to report being hurt by high inflation and interest rates.
With a potential recession looming, the surveys show consumers expect to pull back on spending and businesses anticipate sales will slow.
And while labor shortages are still the second most important issue facing firms, the surveys show signs of easing in the labor market, with businesses no longer anticipating rising wages to push inflation higher.