MNI: Canadians Saw Recession And Inflation After Trump Win-BOC
MNI (OTTAWA) - Canadians saw the risk of a recession and higher prices in the weeks following Donald Trump's election win according to central bank surveys published Monday, denting consumer optimism from the relief provided by lower interest rates.
"Nearly half of consumers said they expect a recession in the coming year, and most consumers (58% this quarter and 60% last quarter) remain uncertain about where the economy is heading," according to the Bank's quarterly consumer survey results taken Oct. 31 to Dec. 3. "Sources of this uncertainty have shifted from interest rates
and government policies to global tensions, including from the new US administration." Before then consumer uneasiness about the economy was more tied to interest rates and government policies, the report said.
Governor Tiff Macklem began cutting interest rates in June from the highest since 2001 as inflation moved back to the 2% target and the domestic economy weakened, but the outlook has been jolted by Trump's Nov. 25 threat of a 25% tariff. Canada sends three-quarters of its exports to the U.S. meaning such a tariff would clearly hurt growth, yet BOC officials and experts have also said inflation could also climb especially if there are retaliatory tariffs.
"Uncertainty about the effects of the new US administration is prevalent with firms commonly anticipating higher input costs due to trade tensions," according to the Bank's business survey taken Nov. 7-27. Results from a separate monthly survey taken in December found higher input costs is the most common concern about the new U.S. president.
"Some firms also said they have revised down their outlook for sale investment and hiring. Expected impacts on selling prices are mixed: while some businesses plan to raise prices to pass along higher costs, others now plan to restrain their price increases to remain competitive," the report said.
Inflation expectations remain elevated. The business survey showed 51% of respondents expect CPI between 2% and 3% over the next two years, and 20% see it faster than 3%. The central bank sets interest rates to keep consumer price inflation in the middle of a 1%-3% target band and to bring things back to normal within two years. Recent reports have seen the inflation rate holding around 2%.