The inflation outlook for 2022 hit a new high with regard to consumer expectations, according to the Bank of Canada’s most recent Canadian Survey of Consumer Expectations, with respondents expecting inflation to be close to 32.7% for the duration of 2022. Though many do expect inflation to slow once the pandemic ends, according to a recent Fidelity article. That sentiment is coupled with supply-chain issues and an increase in food and energy prices, as well as actions from the BOC and the federal government to stimulate the economy. This is leading almost half of surveyed businesses to anticipate that the pace of price increases will remain above three percent over the next two years.
Those same businesses plan to pass those cost increases on to consumers.
“It is an interesting time for entrepreneurs, business owners and the entire Canadian population. We are trying to navigate an interesting as well as challenging point in history. Planning and investment has possibly never been more important than it is right now,” said Jason Hare, Certified Financial Planner and owner of Cornerstone Wealth Planning in Kingston, Ontario.
The Fidelity article also points out other developments from the survey: Consumers and businesses project that the increases in the cost of living will stay high over the next year. This does come with other interesting factors: “part of survey results…also show people more willing to search for new jobs, and businesses willing to pay more for workers.”
“The Bank of Canada has let inflation run a little hot to help the economy recover from the hole dug by COVID-19, saying the elevated readings are temporary issues that should work themselves out,” according to the Fidelity article.
Bank governor Tiff Macklem told reporters following October meetings in Washington, D.C., with his global counterparts that there would be more concern if inflation were to broaden and be sustained, so BOC is closely monitoring expectation vs. actual inflation.
“It is essentially a balancing act and a bit of a waiting game at this point as far as economic policy goes,” said Hare, citing the Fidelity article in which the economy needs to be “healthy enough to handle a rate increase.”
Supply-chain bottlenecking and labour shortages, not anticipated to be alleviated until the second half of 2022, could potentially slow the economic recovery of Canada, particularly if there is any kind of consumer spending surge. This has some experts worried, as a “large portion of firms” report they would have trouble handling any surprise surge.
“People have extra savings accrued right now. What they should be doing is investing it, but some will want to spend it,” said Hare. “Industries are shifting and people are more driven to change jobs and possibly to retire. The time to take a close look at retirement planning and implications of a pay cut is before you make the leap.”
Though Hare does note the findings that suggest there will be more upward pressure on wages in order to attract and keep workers.
“Workers told the central bank they’re more likely to quit their jobs in the search for better hours and pay, or a change in industry, which was more often the case in lower-wage sectors hit harder by the pandemic,” according to the Fidelity article. Jason Hare reiterated that with it being such an interesting time in history people and businesses should be extra contentious about saving money and planning, particularly with all that is developing in light of the pandemic.
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