MNI: BOC Polls Show Record CPI Expectations And Recession Fear

Bank of Canada surveys published Monday show consumers and executives see record high inflation even as they also predict a recession is coming in the next year, firming up the case for Governor Tiff Macklem to hike interest rates by at least another half percentage point next week. 

Inflation will be 7.1% a year from now, a record high in the Bank's quarterly survey of consumers, and close to the current rate of 7%. The current inflation rate was seen at 8%, in line with the four-decade high reached earlier this year. Households also said borrowing costs will be about 5.1% a year from now, versus the Bank's overnight policy rate of 3.25%. Survey results were gathered in August and September.

Nearly four in five households also said the odds of a recession in the next year is at least 50%, citing wages that are lagging inflation and higher interest rates. Business owners also held similar views but about three-quarters of them said the recession would be caused by interest-rate hikes. 

The results are the biggest challenge to the Bank's mandate since inflation targeting was adopted in the early 1990s and come after Macklem tried to get ahead of the inflation wave with a 100bp hike in July. While the Bank has already said it will take longer than its normal two-year window to restore 2% inflation, the survey results suggest many people also haven't embraced the Bank's message that a narrow path to a soft landing still exists.

"Many consumers think now is not a good time to make a major purchase because prices are high, choices are limited, delays are long, and the likelihood of a recession is elevated. They will restrict their major purchases to critical needs, for example, a broken appliance that must be replaced," the Bank's consumer survey report said. 

Companies also saw record high inflation expectations. Some 77% saw inflation faster than 3% over the next two years and another 13% said it would run from 2%-3% over that time. The balance of opinion on future sales growth was also negative for a third quarter at -18 following a -26 reading in the prior report. Firms also reported some early evidence that supply chain snarls are unwinding. "Early signs suggest that pressures on prices and wages have started to ease, but firms' inflation expectations remain high," the B