Downbeat businesses and consumers expect the Canadian economy to remain in the doldrums and inflation to continue to decline, according to a pair of Bank of Canada surveys published Monday, bolstering the case for another interest rate cut at the central bank’s next rate decision on July 24.
Individual expectations for near-term inflation also “declined significantly,” according to the bank’s consumer survey, after stalling for several quarters. “We believe the more downbeat tone from business and consumer sentiment will allow the BoC to look through the upside surprise on the May CPI report,” Toronto-Dominion Bank rate strategists Robert Both and Andrew Kelvin wrote in a note to clients.
The two surveys contain important information for the central bank. Monetary policy makers pay close attention to inflation expectations, as beliefs about prices can become self-fulfilling. They’re also watching for signs of wage pressure, and other signals about how businesses are handling the high interest-rate environment. The bank is purposefully slowing down the Canadian economy with high interest rates in an effort to anchor rising prices.
It also noted a sharp uptick in companies citing taxes and regulation as one of their top concerns. It made no mention of recent changes in tax policy, but the survey was conducted shortly after the Federal budget announced an increase in the capital gains tax inclusion rate for businesses.