More businesses expect sales to slip as high inflation, rates weigh on spending: BoC


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OTTAWA — The Bank of Canada says more businesses than usual expect their sales to decline as most firms and consumers expect a recession in the next 12 months.

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The central bank released its fourth quarter business outlook and consumer expectations surveys Monday, giving some insight into how high inflation and interest rates are affecting Canadian consumers and businesses.

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As business confidence weakens, more firms are reporting demand and credit are pressing concerns.

Meanwhile, they say cost pressures, labour shortages and supply chain issues are easing.

As inflation and interest rates take a bite out of paycheques, consumers say they’re cutting back on spending.

Nearly nine in 10 say they have cut spending on travel, accommodation, food service and recreation.

More than seven in 10 say they’re cutting on clothing and footwear, while nearly six in ten consumers are pulling back on groceries.

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The surveys “suggest that interest rate increases are working as expected in slowing spending,” CIBC’s executive director of economics Karyne Charbonneau wrote in a note to clients.

Despite two-thirds of firms expecting a recession in the next 12 months, half of businesses said they’re planning to add employees or to fill vacant positions in that same time period.

Meanwhile, 72 per cent of consumers expect a recession.

Canadian workers have seen their real wages fall amid high inflation. According to the consumer expectations survey, most workers do not expect their earning to catch up with inflation.

The surveys also show both businesses and consumers expect inflation to remain elevated in the short-term but expect it to ease in five years to the central bank’s target of two per cent.

More than a quarter of consumers expect deflation in five years with many believing prices will decrease as the economy recovers from supply-side shocks.

This report by The Canadian Press was first published Jan. 16, 2023.


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