Consumers and businesses tell Bank of Canada they expect high inflation to stick around

Canadian businesses and consumers think the current era of high inflation will persist for longer than they'd previously hoped, according to two surveys from the Bank of Canada released Monday.

The two reports known asthe Business Outlook Survey and the Canadian Survey of Consumer Expectations are the result of the central bank's quarterly polling of Canadian businesses and consumers for their outlook on what's happening on the ground in Canada's economy.

• How hasinflationand the high cost of living impacted you? Tell us your story in an email toask@cbc.ca

While the findings differed in a few ways, the dominant theme of both was inflationand the impact it is having on buying and selling, hiring and firing.

The main takeaway from the business survey was that most businesses are seeing higher sales than they were seeing earlier in the pandemic, as economic activity is returning to some sort of normal. But demand continues to outstrip supply across almost all types of businesses, which is both a factor of and a contributor to the high inflation currently plaguing the economy.

Nearly two-thirds of businesses told the central bank they are seeing labour shortages. Nearly half 43 per cent say they are experiencing bottlenecks in their supply chains that are taking longer to resolve than previously anticipated.

Businesses expect Canada's inflation rate to still be more than five per cent a year from now, and still more than four per cent two years out. But five years from now, the survey suggests they expect the inflation rate to come back to within the range the central bank targets, between one and three per cent.

It was a similar story on the consumer side. Long-term inflation expectations increased from 3.2 per centto four per cent, while short-term expectations increased to 6.8 per cent, up from 5.1 per cent last quarter.

"Consumers clearly took notice of the recent [consumer price index]releases and the high prices for food and gasoline,"CIBC economistsAndrew Grantham andKaryne Charbonneausaid of the data."Uncertainty around the evolution of inflation has increased."

Wages set to increase

On the employment front, on average, business owners expect their labour costs to increase by 5.8 per cent this year.

That's significantly higher than the two per cent wage increasesthat consumers told the bank they were expecting.

"Workers do not anticipate their wage gains will keep up with inflation," the bank said, adding that those in the private sector think their wages will increase this year by more than those in the public sector will.

Economist Leslie Preston with TD Bank said the surveyshowsjust how concerning inflation is in the minds of ordinary consumers.

"This survey suggests consumer spending in real terms is likely to slow in the coming months as wages can't keep up with inflation, and households are already being forced to economize," she said, adding that expectations of high inflation to come "is a source of concern for low-income consumers in particular, who are adjusting to high inflation by cutting spending, postponing major purchases, looking for discounts more often, and buying more affordable items."