MNI: Most Firms Still See CPI Above BOC Target Band For 2 Yrs

Canadian firms continue to see inflation remaining above the central bank's target range over the next two years according to a BOC survey published Monday, and households also see wage gains staying around record highs.

The 54% of firms seeing inflation above 3% was little changed from the last quarterly survey and marks the ninth report showing such a majority. The figure has declined from the record 84% set at the end of last year. 

Some consumer views of price gains also remained elevated with expectations for CPI in one year little changed at 4.9%, even as current views of price gains slowed to 5.9% from 6.6%, mirroring a slowing of the actual CPI data. Households also expect wage gains of 2.7%, matching the record set in the last report. 

"Short-term inflation expectations are slowing trending downward. Overall, however, businesses still expect inflation to remain elevated over the next two years," the Business Outlook Report said. 

The data underlines challenges bringing inflation all the way back to the Bank of Canada's 2% target even after 10 interest-rate hikes to the highest borrowing costs since 2001, including several last year as the economy defied investor bets on a recession. Governor Tiff Macklem still says he could hike again if needed even as he opened the door to a rate cut this year by saying he could move before inflation is all the way back to target if it's clear price stability is being restored. Most investors see a rate cut around the middle of this year, though no chance of a move at the Jan. 24 meeting.

The prospect of a recession was less prominent in Monday's reports with the measure of future sales growth climbing and investment intentions rebounding. Firms are planning to offer smaller but still elevated wage increases but on balance reported the slowest hiring intentions since 2016. 

The Bank sets rates to keep CPI in the middle of a 1%-3% band and to bring things back to normal within two years, so the business view inflation will be above the band beyond that time suggests moving to easier policy will take longer. The consumer price index has slowed to 3.1% from a peak of 8.1% though the Bank has said it won’t return to target until 2025. Statistics Canada publishes new CPI data Tuesday morning, and investors see a short-term uptick led by gaso.