Results of the Second-Quarter Survey | Vol. 1.2 | July 6, 2020
The Canadian Survey of Consumer Expectations (CSCE) focuses on respondents’ views on inflation, the labour market and household finances. The survey for the second quarter of 2020 was conducted from May 11 to June 1, 2020. Given the ongoing pandemic, in this survey, specific questions were added about the impact on Canadians of COVID‑19 and the measures to contain the spread of the virus (Box 1).
Overview
- Most indicators have deteriorated due to the impacts of the COVID‑19 pandemic and measures to contain the spread of the virus.
- In the second quarter of 2020, consumer expectations for inflation increased over the one-year time horizon, while those over two years remained relatively stable and those for five-year-ahead inflation declined. The increase in consumers’ short-term expectations despite the sharp decline in measured CPI inflation may reflect higher food prices. Consumers’ inflation expectations tend to be influenced more strongly by the prices for products and services they purchase frequently.
- Overall, views on labour market conditions deteriorated relative to those in the previous quarter, consistent with the massive job losses that occurred following the outbreak of COVID‑19. The perceived probability of losing one’s job rose to its highest level in the CSCE, and respondents anticipated having greater difficulty finding new employment if they were to lose their current job.
- Consumers’ expectations for both wage growth and household income growth eased in the second quarter of 2020. At the same time, their expectations for spending growth tumbled, substantially narrowing the pre-existing gap with their expectations for income growth. This suggests that consumers generally became more cautious.
- Overall, consumer expectations for house price growth in Canada dropped to zero. The decline was widespread across provinces. Expectations in Alberta, Saskatchewan and British Columbia were negative.
- In their answers to questions on COVID‑19, respondents showed high levels of caution due to the economic impact of the pandemic and the risk of contracting the virus (Box 1). Consumers expect to focus their spending on essential products and services and spend less on durable goods and on services involving in‑person interactions.
Inflation
In the second quarter of 2020, consumer expectations for one-year-ahead inflation rose slightly from 2.5 to 2.8 percent, close to the peak reached in mid-2018 (Chart 1).1, 2, 3 This increase in short-term expectations despite the sharp decline in measured CPI inflation may partly reflect higher inflation in food prices following increased spending on store-bought food during the pandemic. Consumers’ expectations tend to be influenced more by the prices of goods and services they purchase frequently, such as food and gasoline. Expectations for inflation two years from now remained relatively stable and close to levels observed in the past two years. Expectations for five-year-ahead inflation and perceptions about inflation over the past 12 months both declined. Most respondents anticipate that inflation will stay within or just above the Bank of Canada’s inflation-control target range of 1 to 3 percent (Chart 2). However, larger shares of respondents reported higher rates of expected inflation and deflation relative to previous surveys. The sharp increase in divergence among consumers’ views indicates that uncertainty about the economic outlook has grown.
Chart 1: Inflation expectations
Chart 2: Inflation expectations: distribution
Labour market
Overall, consumer expectations regarding labour market conditions have deteriorated significantly since the first quarter, reflecting the impact of COVID‑19 and related containment measures on both wage growth (Chart 3) and labour market turnover (Chart 4).
First, the probability of losing a job increased to its highest point in the survey. Second, respondents reported that the probability of finding a job if they lost their main job declined from 50 to 40 percent—the lowest level since the 2015 oil price shock. Third, the likelihood of leaving a job voluntarily dropped sharply from its survey high in the previous quarter. This suggests respondents had a worsening view of future labour market conditions and less confidence in their ability to find another position during the pandemic. Weaker expected turnover is likely to lower the quality of job-worker matching as well as productivity and wage growth going forward. Fourth, consumers’ expectations for their wage growth over the next year declined modestly, to 1.9 percent. This is well below their inflation expectations.
Chart 3: Wage growth expectations
Chart 4: Labour turnover
Household finance, credit and house prices
Like their expectations for wage growth, consumers’ expectations for growth of household income decreased in the second quarter of 2020 to the lowest level recorded in the CSCE (Chart 5). Expectations for spending growth declined much more than those for income growth, and the two are now more aligned. This suggests that, on balance, consumers are now more cautious. Consumers lowered their expectations for interest rates over all time frames, in line with cuts to the Bank’s policy rate (Chart 6). Consumers’ responses point to a deterioration in access to credit in the second quarter of 2020. Their expectations for house price growth dropped to zero in Canada overall (Chart 7). These expectations decreased broadly across provinces and fell below zero in Alberta, Saskatchewan and British Columbia.
Chart 5: Household income and spending expectations
Chart 6: Interest rate expectations
Chart 7: House price growth expectations
Box 1: Consumers remain cautious as the COVID‑19 pandemic continues
COVID‑19 is a severe global health emergency with tragic consequences for human life and pervasive economic effects and hardship. In the second-quarter survey, specific questions were added to assess the impact of COVID‑19 on Canadian households.
Overall, consumers are cautious because of the risk of contracting the virus as well as the economic impact of the pandemic and related containment measures. Large shares of respondents consider health and economic risks from the virus to be high or moderate. Many people face reduced earnings because they have lost their jobs or are working fewer hours. Consumers have changed their behaviour; they reported shopping less often, cancelling or postponing major purchases and lowering their spending compared with before the pandemic.
The pandemic appears to have influenced households’ outlook for the future. Signs point to a gradual recovery and some persistent impacts. Consumers’ responses indicate that they are cautious about engaging in activities involving in-person interactions. They are also careful about their spending, which has shifted in composition. Households expect to concentrate their spending on essential goods and services and to reduce spending on durables (cars, home appliances, furniture) and activities involving person-to-person contact (restaurants, cinema, travel and transportation) until the situation normalizes (Chart 1-A). Another sign of caution is that many respondents expect their work to return to normal sooner than their spending and social habits. This points to some excess supply and disinflationary pressures.
Chart 1-A: Consumers plan to concentrate on essentials
| Balance of opinion*, percent | |
|---|---|
| Travel and transportation | -30.77 |
| Restaurants, cinema, social activities | -25.66 |
| Durables (cars, appliances, furniture) | -18.75 |
| Education | -14.06 |
| Clothing, footwear | -11.84 |
| Health and personal care | 5.12 |
| Shelter | 8.65 |
| Groceries | 8.7 |
The pandemic also seems to have accelerated some ongoing structural trends in spending, such as the shift to online shopping (Chart 1-B). Many respondents reported having increased their online spending on food and beverages, household goods and personal care products.
Chart 1-B: A large share of consumers changed their shopping habits
| Shares of respondents, percent | |
|---|---|
| I shop less frequently | 61.93 |
| I shop differently (curb-side pickup, shop for others, others shop for me) | 41.57 |
| I shop more online | 38.71 |
| My purchases are different (e.g., stockpiling) | 22.09 |
| My shopping habits have not changed | 12.84 |
Endnotes
- 1. We focus on median expectations rather than the average to avoid potential skewness driven by extreme values. For details on the computation of median inflation expectations and other data presented in this report, refer to the Overview.[←]
- 2. As in other countries, in Canada household inflation expectations tend to be somewhat higher than observed inflation. This suggests that it is more informative to focus on changes over time rather than levels. For more details see M.‑A. Gosselin and M. Khan, “A Survey of Consumer Expectations for Canada,” Bank of Canada Review (Autumn 2015): 14–23; and “Survey of Consumer Expectations,” Center for Microeconomic Data, Federal Reserve Bank of New York (December 2019).[←]
- 3. Inflation expectations can differ by demographic group (age, level of education and income). This also suggests that it is more informative to look at changes over time rather than levels to better understand aggregate inflation pressures.[←]