Canadian Survey of Consumer Expectations—Second Quarter of 2024

Results of the second-quarter survey | Vol. 5.2 | July 15, 2024

The Canadian Survey of Consumer Expectations was conducted through an online panel from April 26 to May 15, 2024. Follow-up phone interviews took place from May 14 to May 23.

Overview

• Consumers’ perceptions of inflation are unchanged from a quarter ago, but their expectations for inflation over the next 12 months have declined significantly. Both measures have improved substantially in recent quarters, although they remain higher than they were before the COVID‑19 pandemic. Most consumers continue to think that domestic factors—in particular, high government spending and elevated housing costs—are contributing to high inflation.
• Sentiment remains subdued and unchanged from last quarter, as high inflation and elevated interest rates continue to constrain people’s budgets. Perceived financial stress remains high, most consumers continue to report spending cuts, and pessimism about future economic conditions persists. However, homebuying intentions are close to the historical average, supported by strong plans among newcomers to purchase a home.
• Consumers’ perceptions of the labour market have weakened this quarter, especially among private sector employees. However, overall wage growth expectations reached a new survey high, driven by public sector employees who anticipate their salaries will catch up with the higher cost of living.

Inflation expectations eased but remain above pre‑pandemic levels

Consumers’ perceptions about inflation are unchanged from last quarter (Chart 1, blue line), but their expectations for inflation one year ahead have declined significantly after stalling for four quarters (Chart 1, yellow line). Both measures have shown significant progress since they peaked in 2022. These two measures typically move together because consumers’ perceptions of current inflation tend to influence their expectations for near-term inflation.1

In follow-up interviews, some consumers noted that prices are not increasing as much as before. One person said, “I often buy the same basket of products and, when I compare the bills, I feel like store prices are relatively stable compared to previous months.”

The most cited factors influencing consumers’ views about perceived and expected inflation are developments in food prices, gas prices and interest rates. In a follow-up interview, one consumer stated, “Everything is related to gas anyway—if gas goes up, everything goes up.”

Consumer perceptions of inflation continue to be higher than actual consumer price index inflation, and expectations for inflation over the next 12 months remain high. Consumers cited domestic factors as the main causes of high inflation—in particular, high government spending and elevated housing costs (Chart 2)—and fewer consumers than last quarter expect these factors to resolve in the short term.

These results are in line with still-elevated expectations for price growth for some key goods and services, including rent—an important part of housing costs (Chart 3). Consumers continue to report higher inflation expectations for key services, such as food in restaurants and entertainment, than for key goods, such as food and gasoline. However, expectations for growth in the prices of these items over the next 12 months have eased slightly over the past 12 months.

While perceptions of current inflation and expectations for near-term inflation remain above pre-pandemic levels, expectations for inflation in the long term remain broadly unchanged and anchored. Relative to last quarter, fewer consumers expect deflation and more expect inflation to be within the Bank of Canada’s inflation-control target range of 1%–3%.

Inflation and interest rates still weigh on consumer demand

Canadians continue to feel the negative impacts of elevated inflation and high interest rates on their financial situation. The share of consumers feeling worse off remains high—almost twice as many consumers reported greater impacts from inflation than from interest rates (Chart 4). Consumers continue to report taking or planning to take various actions in response to inflation and interest rates, with the most cited actions being:

• reducing spending
• paying off debt
• moving savings to accounts with higher interest rates
• increasing household income

Consumers’ pessimism about their financial situation is also reflected in various indicators of perceived financial stress (Chart 5). Although these indicators increased slightly this quarter and remain above average, they are still below the high levels recorded in 2023.2 This quarter, perceptions of job security deteriorated, and the reported probability of missing a debt payment increased among renters. When asked about the factors behind the expected worsening in their financial situation over the next year, most consumers cited weaker confidence in future economic conditions and slower income growth (Chart 6).

Most consumers continue to report that past increases in interest rates will have an ongoing impact on their spending in the future. As in last quarter’s survey, nearly 80% said these impacts on their spending are just as or more severe than they were six months ago. In a follow-up interview, one person noted, ‘’It is discouraging; my financial situation is not getting any better,’’ and many others reported they would need prices to decrease to feel some relief.

With persistent pressures on their finances, consumers continue to adjust their consumption, illustrated through, for example, their weaker spending plans. The share of consumers planning to cut overall spending and save more because of their expectations for interest rates and inflation remains near survey-high levels (Chart 7).

Although expectations for growth in inflation-adjusted spending remain negative, a slightly larger share of consumers than last quarter plan to spend on a vacation or major event over the next six months. While many consumers continue to report they have been delaying these purchases for a while, this quarter’s small increase could be due to the approach of summer vacations.

After improving in the first quarter of 2024, Canadians’ views about the economic outlook have remained unchanged. Overall, consumers remain as pessimistic as a quarter ago. For instance, the share of consumers expecting economic activity in Canada to decline over the next 12 months remains high (51% this quarter and 52% last quarter), and most are uncertain about where the economy is heading. When asked why they find the outlook particularly difficult to predict right now, most cited government policies, global tensions and interest rates (Chart 8). Uncertainty weighs negatively on consumers, and those who are less certain about the outlook reported generally weaker consumption plans than those who are more certain.

Similarly, consumers’ expectations for interest rates remain higher than they have been historically and have not changed much from a quarter ago. In follow-up interviews (conducted before the Bank of Canada reduced the policy interest rate on June 5), consumers expressed uncertainty and concern about the timing of potential rate cuts. One respondent said, “[The media] talked a lot about occasions where there would be a decrease in rates, but according to the trend, it will take some time.” Another said, “I don’t know why the Bank of Canada is being that cautious; it’s already been six months that theoretically they could have started to lower interest rates.”

Although mortgage holders continue to expect interest rates to remain elevated, most are still confident they will be able to cope with higher payments when they renew their mortgage. Those closer to renewal appear to be slightly more concerned than those renewing later. Overall, the probability of mortgage holders missing a debt payment remains low and unchanged since 2021.

Interest rate expectations are still high, but housing market activity continues to be relatively strong. Indicators of housing churn are at or above their 10-year survey averages (Chart 9). The share of consumers planning to buy a home is close to the survey average and higher than the average of the previous four quarters. This higher level of homebuying intentions continues to be supported by newcomers, who typically exhibit stronger intentions than other Canadians.3 When consumers were asked which factors are driving their intentions to buy a home, they most commonly cited:

• a perception of improving home affordability
• rising rent prices, making mortgage payments more attractive
• personal reasons

In addition, home price growth expectations increased for the second quarter in a row and remain above average at roughly 5%.

Labour market perceptions have weakened

Consumers’ perceptions of the labour market have resumed their deterioration after appearing to stabilize last quarter. The reported probability of losing a job is higher than in the previous survey, particularly for newcomers. People searching for work continue to spend more time than usual doing so (Chart 10). In a follow-up interview, one respondent said, “We talked a lot about labour shortages during the pandemic, but it’s another reality now. There are a lot of job cuts and it’s increasingly hard to find a job.”

This result is in line with the recent trend of perceptions that the labour market has cooled significantly over the past 12 months—especially among people working in the private sector. The share of consumers reporting that it has become harder to find a job in their line of work went from 38% a year ago to 50% this quarter.

In contrast, other labour market indicators improved this quarter. Wage growth expectations edged up to a survey high—doing so for the fourth consecutive quarter—and workers reported a higher probability of voluntarily leaving their job, notably to improve their earning prospects. However, these results mask differences between sectors, with employees from the private sector showing more signs of deteriorating confidence than those in the public sector.

Wage growth expectations among private sector employees have eased since last quarter (Chart 11). In contrast, expectations for wage growth in the public sector have increased and are getting closer to those in the private sector. This is because more public sector employees expect their wages to catch up with inflation through the renewal of their collective bargaining agreements.

Endnotes

The Canadian Survey of Consumer Expectations gathers respondents’ views on inflation, the labour market and household finances. Additional information on the survey and its content is available on the Bank of Canada website. The survey report summarizes opinions expressed by the respondents and does not necessarily reflect the views of the Bank of Canada.