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Les Canadiens n’ are not done with inflation

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More than half of business owners surveyed believe that inflation will still be above 3% in Canada in two years.

  • Stéphane Bordeleau (View profile)Stéphane Bordeleau

Even though inflation has fallen considerably in recent months in the country, more than half of the companies surveyed by the Bank of Canada predict that it will still be above 3% in two years. One in four business owners even believe it will take more than four years before they return to 2%, the central bank's target.

According to an online questionnaire submitted to nearly 800 Canadian business leaders (The pulse of entrepreneurs) and around a hundred telephone interviews conducted as part of the Business Outlook Survey(New window), even though inflation has fallen by five percentage points in the country since June 2022, a quarter of respondents believe that there is still a long way to go before the cut on the lips.

When asked what the inflation rate will be in two years, 54% of respondents believe it will be over 3%, while 39% estimate that it will be between 2% and 3%.

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Rising wages, high prices for basic products, energy, food and soaring housing prices are the main factors cited by business leaders to explain this stagnation of inflation in despite numerous increases in the Bank of Canada's key rate to calm economic overheating.

In June 2022, inflation in Canada reached 8.1%, the highest level seen in 40 years in the country. Last November, after a dozen increases in the central bank's key rate, the inflation rate in Canada was 3.1%, but this decline remains fragile. Several observers also expect an increase in December.

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As for the market, the companies surveyed reported less favorable conditions in the fourth quarter.

Many of them have seen their sales volume decline. Indicators of future sales, such as order backlogs and inquiries, have deteriorated compared to last year. However, overall, businesses believe their sales will stabilize over the next 12 months, notes the Bank of Canada. With interest still very high, business owners fear that difficult economic conditions caused by the credit crunch will affect demand in the long term.

High interest rates have had negative effects on a majority of businesses. These have relatively moderate sales prospects as well as weak investment and hiring intentions.

A quote from Excerpt from the Bank of Canada survey

As demand slows, businesses need to hire fewer workers, which is the case for most respondents, who also noted a reduction in the intensity of the labor shortage. been working over the past 12 months.

Households surveyed by the Bank as part of the Survey of Consumer Expectations in Canada (New window) are increasingly reducing their spending to cope with the increase in everyday consumer products and more durable goods.

In the fourth quarter of 2023, almost two-thirds of consumers said they had cut back on spending or planned to do so soon due to high interest rates and inflation.

Many households are experiencing increasing levels of financial stress, but this stress is higher among those who typically live paycheck to paycheck. These households are most vulnerable to financial distress caused by a fiscal shock – such as a loss of income or an unexpected expense – because they do not have the savings or access to credit needed to protect against it, underlines the Bank of Canada.

According to the central bank, the most vulnerable households have less than two weeks of spending on liquid assets, are often short money before the end of the month and are unable to immediately pay an unexpected $500 expense.

One ​​in four people surveyed were in at least one of these situations last quarter.

Although they are generally more pessimistic than in the third quarter of 2023, Canadians who have a mortgage still say they are confident, in a proportion of 80%, of being able to continue to pay their mortgage drafts when their loan is renewed at a higher rate.

  • Stéphane Bordeleau (View profile)< source srcset="https://images.radio-canada.ca/q_auto,w_160/v1/ici-info/1x1/stephane-bordeleau-photo-journaliste.jpg" media="(min-width: 0px) and ( max-width: 1023px)">Stéphane BordeleauFollow

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