The downbeat mood among Canadian businesses and consumers is starting to improve as fewer people expect a recession and many look toward a decline in interest rates over the coming year, according to a pair of Bank of Canada surveys, published Monday.
In the quarterly Business Outlook Survey, fewer companies said they expect to make unusually large or frequent price changes over the next year. And only about a quarter of the respondents thought inflation would be above the central bank’s 2-per-cent target beyond three years, down from 37 per cent last quarter.
But near-term inflation expectations barely budged while beliefs about inflation five years down the road ticked higher. The bank noted that people view high government spending, elevated home prices and rising rents as the main cause of inflation – a perception that could have significant political consequences.
The central bank has kept its policy interest rate at 5 per cent since last summer, and said that it expects to begin lowering rates sometime this year as inflation normalizes. Most Bay Street analysts and bond traders expect the first rate cut will come in June or July. On the downside, indicators of future sales, such as advanced bookings and sales inquiries, remain weak. And businesses are showing a concerning pullback in plans to invest in machinery and equipment.