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Free AccessMNI: PBOC Net Injects CNY28.8 Bln via OMO Thursday
MNI: BOC Surveys Show Record Inflation Expectations
Canadian firms and households expect record inflation according to central bank surveys published Monday, firming up the case for Governor Tiff Macklem to hike interest rates by at least another quarter point next week.
Some 84% of respondents in the Business Outlook Survey said inflation will exceed 3% over the next two years, beating the prior record of 78% reached in the middle of last year. Households in a separate survey predicted inflation of about 7.2% over the next year, just higher than the record set in the previous report, while the current view of inflation was little changed at almost 8%.
Bank officials have previously called the price surge their biggest challenge since inflation targeting was adopted in the early 1990s and the rise in price expectations come after Macklem tried to stay ahead of the jump with a 100bp hike in July. Officials have said the longer inflation is elevated, the greater the risk it becomes entrenched.
"Consumers are still concerned about inflation, and some are uncertain about the effectiveness of tightening monetary policy," the Bank's Survey of Consumer Expectations said. Those elevated price concerns come even with a majority of respondents predicting a recession in the next year, in a survey taken from late October into December.
Before today's report, investors were somewhat split between the Bank holding rates at 4.25% at its Jan. 25 meeting and a quarter-point increase, which would be the eighth in a row. Still, tomorrow's inflation report could tip the balance again for Macklem who said the next decision is more data dependent. Other recent reports have shown strength including an unemployment near a record low and an economy growing at a 3% annualized clip.
The report also showed the Bank's rate hikes from a record 0.25% last year are working to slow what officials have called an overheated economy. More consumers said they are cutting back on non-essential spending, and some expect their wages will continue to lag inflation. Price gains peaked at 8.1% last summer and now stand at 6.8%, with the last few reports showing less deceleration than expected. Core inflation rates also remain elevated around 5%.
Companies had similar pessimistic views, with the balance of opinion on future sales growth negative for a fourth quarter and most seeing a recession ahead. Three-quarters of firms said rate hikes are having "unfavourable effects" on their operations. Firms also expect wage increases over the next year of 4.7%, close to recent gains and another sign of lingering inflation pressure.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.