Canadian Survey of Consumer Expectations—First Quarter of 2023

Results of the first-quarter survey | Vol. 4.1 | April 3, 2023

This survey took place between January 27 and February 16, 2023. Follow-up interviews took place in March 2023.

Overview

• Expectations for inflation one to two years ahead have fallen but remain well above their levels from before the COVID-19 pandemic. Consumers’ expectations for growth in prices of some goods have edged down, although their price growth expectations for services such as rent have remained high.
• Most consumers think the Bank’s ability to get inflation back to target is hampered by high government spending and challenges with supply chains. Many people believe supply chain issues will be resolved in the next two years, and some think prices for affected products will fall. Those who expect high government spending to impact inflation believe it will continue to do so for a long time.
• High inflation and rising interest rates are putting pressure on consumers—and particularly on mortgage holders. In response, consumers expect to spend less on discretionary services—such as travel, restaurant meals and other social activities—than they did over the last 12 months.
• Most Canadians see a recession as the most likely scenario for the economy in the next 12 months. But many are uncertain about where the economy and labour market are going. Consumers who are more uncertain are planning to spend less and save more as a precaution.
• Despite uncertainty about the economy, workers view the job market as strong. Respondents, particularly those not satisfied with their current job, are confident they can find new work. Workers’ expectations for private sector wage growth are also near a survey high. But wage growth expectations remain below inflation expectations, and most workers do not see their wages catching up with recent inflation over the next year.

Canadians’ concerns about inflation are still high but appear to be easing. Consumers expect monetary policy to continue to be effective and economic growth to slow. One respondent noted in a follow-up interview, “Inflation is a little bit less concerning now because of the action that [the Bank has] taken with interest rates that should reduce demand and inflation.”

Respondents expect inflation to slow for goods, such as gasoline and vehicles. But while their inflation expectations for goods have fallen, consumers continue to be frustrated by high food prices at grocery stores. One respondent said, “Food prices create a lot of stress,” and, "This bothers me the most." Another said, “Even the prices for specials are too high." In contrast, expectations for services have not changed significantly. Consumers expect the rate of price growth for services, such as rent, to remain high.

Consumers see many obstacles to the Bank reaching its inflation target. Supply chain disruptions remain the most common factor mentioned, although most consumers think these disruptions will be resolved in the next two years (Chart 2). Many also think that high government spending, including spending following the outbreak of the COVID-19 pandemic, may affect the Bank’s ability to get inflation to target for three years or more. Some consumers believe the impact of the war in Ukraine and increased profits for businesses, particularly grocery stores, will also be obstacles.

Canadians’ awareness of the inflation target is growing, and this is helping to ease inflation expectations. Consumers who know of the inflation target tend to have more moderate inflation expectations than do those who are not aware of it (Chart 3). In particular, they are less likely than other respondents to expect either high inflation or deflation in the long term.

Expectations for inflation five years from now are at historical lows. Roughly one-third of survey participants expect deflation, often through price reversals, because they think supply chain disruptions will be resolved within the next couple of years. Most consumers, however, still expect inflation in five years to be close to or above the Bank’s inflation target range. In a follow-up interview, one participant said, “Prices are always moving up.”

The impact of monetary policy on spending is broadening to services

High inflation is negatively impacting household finances, and rising interest rates are adding pressure. Compared with how consumers viewed their financial positions during the 2017–18 cycle of policy rate tightening, more than twice as many now say they are financially worse off (Chart 4). Consumers also feel that they are less able to access credit and that the chance they will default on their borrowing has increased. Some Canadians—particularly Indigenous people and holders of variable-rate mortgages—are more likely than others to say they are negatively affected (Box 2).

Consumers are noticing the impacts of high inflation and rising interest rates on their spending plans. And these impacts are broadening to include spending on services. About one-third of consumers expect to travel less often, eat out less often and enjoy fewer paid entertainment or social activities in the next 12 months than they did in the previous 12 months. This is largely because of the high prices of these services and other essential purchases (Chart 5 and Chart 6). “Due to higher interest rates and higher inflation, we are not eating out as much,” one consumer said. Another reported, “I am now more willing to say yes to travelling, but I have less opportunities due to higher interest rates.”

Most respondents expect a recession in the next 12 months (Chart 7, panel a). That said, people are very uncertain about the economic outlook (Chart 7, panel b). This economic uncertainty is pushing some consumers to reduce their spending growth and build up their savings (Chart 8). “We are feeling more stress with the interest rates perhaps still going up. It is hard to see where things are going, so we are saving more because we don’t know if we are going to be able to afford things. It is a lot in our minds.”

Consumers anticipate some relief in the housing market because they believe interest rates may fall earlier than previously expected. As a result, consumers expect home prices to grow modestly in the next 12 months, with expectations increasing for the first time since interest rates started rising (Chart 9). One consumer mentioned, “The Bank of Canada pause is a sign that things are getting a bit better.”

Consumers report strong labour market conditions

Despite the cloudy economic outlook, consumers still see the labour market as healthy. Workers are confident in their own employment situation. They think there is a lower chance now of losing their job in the next 12 months compared with that possibility early in the pandemic. Indeed, many workers who are unsatisfied with their job notice plenty of job availability and are more willing than before the pandemic to change their job voluntarily. But not all available jobs are considered high quality. One respondent said, “There are a lot more jobs available,” while another remarked, “Not a lot of good jobs are available, at least in my field.”

Wage expectations also reflect a tight labour market facing the challenges of increasing the labour supply. Respondents’ expectations for wage growth in the private sector are near a survey high (Chart 10). And people outside of the workforce say they would need a much higher wage now to accept a job compared with what they would have accepted in the second half of 2021 (Chart 11).2 Of that group, seniors and women with young children reported the highest wages required to go back to work. Still, almost no workers think their wage growth will match their expectations for inflation over the next year.