MNI: BOC Polls Show Price Views Are Elevated But Improving
Canadian households and business managers continue to see inflation outside the Bank of Canada's target range though there is softening in wage and price demands according to surveys published Monday by the central bank ahead of next week's decision where officials are expected to leave borrowing costs at the highest in decades.
The share of firms expecting consumer prices to climb faster than 3% over the next two years was 40%, down from 54% in the fourth quarter and the lowest reading in almost three years. Inflation expectations remain top-heavy with another 54% seeing price gains in the top half of the Bank's 1% to 3% target band and just 3% saying it will be in the lower half.
Consumer views of inflation have been stickier, remaining around 5% for a third straight report on the question of how much prices will advance over the next year. Perceptions of the current inflation rate have made more progress, falling to 5.25% from about 7.1% a year ago. The consumer price index has slowed to 2.8% from a peak of 8.1% though the Bank has said it won’t return to the 2% target until 2025.
Both Bank surveys showed less pessimism about the economy though that partly reflected views that the Bank of Canada will be cutting interest rates. Governor Tiff Macklem has signaled a rate cut is possible sometime this year if there is broad evidence inflation is returning to his 2% target. Investors predict the policy rate will remain at 5% at next week's decision and many predict a cut in June.
"Pricing behaviour is continuing to normalize. But the slow moderation in wage growth and the gradual pass-through of high costs are keeping output price growth elevated," the Business Outlook Survey said. Firms plan 4.1% wage increases, which again is an improvement but above historical averages, and household wage expectations remained around a survey high at 2.8%.