The central bank’s business outlook indicator fell to minus 2.2 in the second quarter from minus 1.1 previously. A greater number of companies now think it will take five years or more for the rate of inflation to drop to around two per cent, saying they see price gains being supported by high government spending and strong demand.
Together, the surveys show households and businesses are holding up better than expected in the face of the Bank of Canada’s aggressive interest rate increases. Coupled with brighter economic data, they may add to evidence that borrowing costs aren’t yet restrictive enough. Gross domestic product figures released Friday also showed a rebound in the economy in May after it stalled in April. That leaves Canada’s economy on track for around 1.4 per cent annualized growth in the second quarter, higher than most economists’ estimates. Traders slightly pared their bets for another interest rate hike at the Bank’s July 12 meeting, with odds now sitting around 60 per cent. The bank’s survey showed many domestic demand indicators up slightly from a year ago.
Although shortages of workers remain common in sectors such as manufacturing, construction and retail trade, overall pressures on the job market are easing due to decreased competition for employees and increased labor supply. Some firms expect wage growth to moderate from high levels, with most expecting average annual gains of 4.5 per cent over the next year — a level the bank flagged as “well above normal.” For consumers, wage expectations remain near survey highs.