Central bank polls consumers, businesses in twin surveys, finding ‘dissatisfaction’ about expectation wages becoming unmoored from cost of living
Canadians are increasingly worried that consumer prices will keep shooting up while wages stagnate, a sign that inflation expectations are becoming unmoored and the Bank of Canada may have to move aggressively to raise interest rates.
The pair of surveys adds to the argument that the Bank of Canada may need to make an oversized interest rate hike at its upcoming rate decision on April 13. Canada’s top central bankers have hinted in speeches over the past month that a 0.5 percentage point rate increase is on the table. Usually, the bank moves in 0.25 percentage point increments.
“The bank will take note that a strong majority see inflation over 3 per cent for the next two years, and that’s something that the bank wants to lean against,” he said. While short- and medium-term inflation expectations have risen sharply, longer-term expectations remain relatively well anchored, the surveys found. Consumers expect inflation to be around 3 per cent in five years’ time, which is below the survey’s historical average. Fewer than 10 per cent of business survey respondents thought inflation would be substantially above 2 per cent in three to four years.
“In an attempt to ward off a further move in inflation expectations, it’s time for the Bank of Canada to unleash some ‘shock and awe,’ ” he added.
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