Inflation expectations remain high
Jan. 19, 2024
Global Korean Post
Bank of Canada released the Business Outlook Survey—Fourth Quarter of 2023.
Results from the Business Outlook Survey and the Business Leaders’ Pulse show that softer demand and renewed competitive pressures are slowly pushing down growth in output prices.
Concerns about labour shortages are receding; even so, wage growth is expected to ease only gradually. Partly because of this slow easing, firms expect inflation to remain above the Bank of Canada’s 2% target for some time.
Short-term inflation expectations are slowly trending downward. Overall, however, businesses still expect inflation to remain elevated over the next two years.
Most businesses that expect inflation to remain high in the short term link their expectations to wage growth in the Canadian economy and the prices of commodities, food and housing.
Despite the declining trend in short-term inflation expectations over the past year, the share of businesses that believe inflation will not return to the Bank of Canada’s 2% target in the next four years has risen to about one-quarter of firms.
These businesses often cited high prices for energy, food and housing as the main obstacles to a quicker return to the inflation target.
Although these firms expect inflation to be high for a long time, only a few are changing their behaviour in line with their outlook, for example, by adjusting their investment plans and sales strategies.
