MNI: BOC Surveys Show Slowest CPI Expectations Since 2021
Canadians' inflation expectations are the most restrained since 2021 according to central bank surveys while remaining above its target, in line with policymakers who say they can keep cutting interest rates as the economy returns to price stability.
The share of executives who see inflation faster than 3% over the next two years declined to 15% in the third quarter from 41% in the prior report. A majority of 62% see CPI in the upper half of the Bank of Canada's 1% to 3% target band.
"Firms' expectations for inflation have moderated for all time horizons and have converged to around 2.5%," according to the Business Outlook Survey published Friday.
Fewer companies plan larger-than-normal price increases and wage expectations "continued to normalize" amid a "subdued" economy, the Bank said. Investment and hiring plans remain modest, and one-third of executives see inflation returning to target over the next year.
Bank of Canada Governor Tiff Macklem has cut borrowing costs at three straight meetings and has said more can be justified with inflation stabilizing sometime next year. Former officials have told MNI today's 4.25% rate will steadily decline at least through the early part of next year and likely go below 3% to bring monetary policy back to around neutral.
The Bank's separate quarterly tracking of consumers showed a steep drop of inflation expectations over the last year, though they remain at elevated levels. The share of respondents saying inflation will be within the Bank's target range over the next year rose for a third straight report, to 29% from 17%.
With polling done after the Bank began cutting rates in June, consumers also reported less financial stress and worry about the pain of mortgage renewals. Before rate cuts began the Bank hiked its overnight borrowing rate from near zero to 5%.