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Canadian Survey of Consumer Expectations—Fourth Quarter of 2023

Results of the fourth-quarter survey | Vol. 4.4 | January 15, 2024

This survey took place between November 1 and 17, 2023.1 Follow-up interviews took place from December 1 to 8, 2023.


  • Consumers perceive inflation to have decreased, and their expectations for price growth for some key goods such as food and gas have moderated. But near-term inflation expectations have barely changed. Persistently high expectations for inflation for services such as rent may be slowing progress in returning overall inflation expectations to where they were before the COVID‑19 pandemic. Expectations for inflation in the long term have fallen further below the historical average and continue to be more varied than usual.
  • People have adjusted their behaviour in response to high inflation. For the past few quarters, more consumers than before the pandemic have been paying attention to inflation and changing their spending habits. However, actions that may support inflation, such as seeking wage increases to offset inflation, are dissipating.
  • Consumers continued to report feeling the negative impacts of high inflation and high interest rates, and more than last quarter are cutting their spending in response. Further spending adjustments are expected, with many mortgages coming up for renewal in the near term. Financial pressure remains high, particularly for households living paycheque to paycheque. Nevertheless, mortgage holders remain confident about their ability to make higher payments after their mortgage contracts renew.
  • Canadians are more pessimistic than last quarter about economic growth, and many remain uncertain about the economic outlook. This uncertainty is leading to cautiousness that is weighing on spending decisions. Although workers perceive the labour market to be weaker, their expectations for wage growth remain elevated.

Consumers believe inflation has fallen, but their short-term inflation expectations are little changed

Consumers think inflation is lower now than they did in the previous survey, but their expectations for near-term inflation have not changed much (Chart 1).2 Expectations for price growth for some key consumer goods, notably food and gas, are falling, and this is likely contributing to the decline in people’s perceptions of overall inflation (Chart 2). However, inflation expectations for services such as entertainment, meals in restaurants and rent remain elevated. This may be holding back progress on restoring overall inflation expectations to pre-pandemic levels.

Chart 1: People perceive inflation to be lower, but their expectations for short-term inflation are little changed

Chart 2: Consumers expect price growth for some goods to slow

The slowdown in the return of inflation expectations to pre-pandemic levels could also be due to a change in what consumers believe is keeping inflation high. This quarter, more consumers reported that domestic factors are supporting high inflation, and they tend to view these as more persistent than global factors (Chart 3). Among domestic factors, high government spending remains the most frequently cited, followed by businesses trying to increase their profits.

Chart 3: Consumers think domestic factors are keeping inflation high

Most global factors, such as supply chain issues, have declined in importance since last quarter. A notable exception is global conflicts. This is likely because of the war in Israel and Gaza that started in October 2023.

Expectations for inflation in the long term have fallen further below the historical average. Consumers’ long-term expectations for inflation continue to be more varied than usual. Many respondents still expect prices to fall five years from now, while others think inflation could stay elevated in the long term.3 In follow-up interviews, one respondent said, “I don’t see inflation coming back to 2%. I think the new normal will be 3% to 5%.”

Consumers appear to be changing their behaviour in response to prolonged high inflation. They are more likely now than before the pandemic to:

  • pay attention to inflation
  • be concerned about increases in the cost of living
  • adjust their spending habits to lessen the impacts of high inflation
  • push for higher wages
  • expect the prices of a range of goods and services to increase rapidly and at similar rates

Some of these behaviours may also reinforce mechanisms that keep inflation high. Gradual declines in these behaviours relative to last quarter suggest that pressure on inflation is weakening. For example:

  • Consumers’ expectations for price increases across different goods and services are starting to diverge. This suggests that sector-specific factors rather than broad economy-wide factors are now pushing prices up (Chart 2).
  • Fewer workers this quarter than last are seeking higher wages because they expect inflation to be high (Chart 4).

Chart 4: Fewer consumers are pushing for higher wages or looking for more income in response to their inflation expectations

Still, some consumer behaviours that would normalize with the end of a period of high inflation remain near survey highs. For instance:

  • Many consumers are still reducing or postponing purchases because of their inflation expectations (Chart 5).
  • People are still following inflation more closely than they normally do.4

Chart 5: Consumers are increasingly reducing spending because of their inflation and interest rate expectations

High inflation and high interest rates continue to influence consumers’ decisions

High inflation continues to be a challenge for most consumers, and the cost of living remains their top concern. At the same time, the negative effects of higher interest rates broadened again this quarter, leaving more consumers financially worse off (Chart 6).

Chart 6: An increasing share of consumers are financially worse off due to rising interest rates

Consumers expect interest rates to remain high and their real wage growth to be weak. As a result, an increasing share said they are pulling back on spending plans (Chart 5). In follow-up interviews, consumers noted ways they are spending less, such as:

  • buying only essentials
  • purchasing generic grocery products instead of brand name ones
  • buying items that are on sale

In addition, some people reported taking other actions to protect themselves against inflation and interest rates. For instance, some are:

  • paying down debt
  • looking for savings accounts with higher interest rates

Similarly, households’ intentions for making a major purchase remain muted—especially for durable goods, which are more likely than services to be financed with a loan. Respondents’ plans to buy durable goods are driven mainly by a need to replace worn out items. While survey results continue to show some signs of pent-up demand for services such as vacations or concerts, budgetary pressures are rising, and people are faced with tough choices. As one interviewee said, “Family vacations happen once a year and it’s very important to us. We allow ourselves to do it, but during the year we go out to restaurants and the movies less, and we ski less often.”

The negative impacts of high interest rates and high inflation are increasingly appearing in indicators of households’ financial stress, which have risen considerably in recent quarters and are now near survey highs (Box 1).5 Still, most mortgage holders remain confident that they will be able to cope with higher payments when their mortgages renew, and most continued to report that their mortgage payments are below the maximum amount they could afford. This suggests that their financial stress levels remain manageable despite their exposure to higher interest rates.

Box 1: Consumers are feeling squeezed by high inflation and high interest rates

The combination of high inflation and high interest rates is putting pressure on consumers’ budgets. Some indicators of household financial stress have risen over the past year and are near survey-high levels (Chart 1-A). For instance, households believe their financial health is worse, they are finding it harder to access credit, and they are reporting a higher probability of missing a debt payment.

Chart 1-A: Households are reporting an increase in financial stress

Chart 1-A: Households are reporting an increase in financial stress

Share of respondents and median probabilities, by various indicators. Standardized data. All indicators include data from 2014Q4 to 2023Q4.

Share that perceives their financialsituation is deteriorating Share that expects access to creditto be more difficult over the next12 months Median probability of missing adebt payment Share that expects their financialsituation to deteriorate in the next12 months Median probability of losing a job Share that perceives access tocredit is more difficult Survey average 2023 average excluding Q4 2023Q4

Note: A move toward the centre indicates lower financial stress. Each line represents one standard deviation from the historical mean.

While many Canadians are experiencing rising levels of financial stress, this stress is higher among those who typically live paycheque to paycheque. These households are the most vulnerable to financial distress from a budgetary shock—such as a loss of income or an unexpected expense—because they lack the savings or the access to credit to buffer against it. Typically, financially vulnerable households:

  • hold less than two weeks’ worth of expenses in liquid assets
  • frequently run out of money before the end of the month
  • are not able to immediately pay for an unexpected expense of $500

About 25% of Canadians reported having at least one of these characteristics, and about 10% cited two (Chart 1-B).

Chart 1-B: One in four consumers reported at least one characteristic of financial vulnerability

Compared with other households, those living paycheque to paycheque are more likely to:

  • have lower income
  • be younger
  • rent rather than own their home
  • be unemployed
  • have weaker spending plans

Many households, including mortgage holders facing renewal in the coming months, continue to believe that past interest rate increases will impact their spending (Chart 7). Those who believe the impacts are not yet over reported weaker overall spending intentions than other consumers.

Chart 7: Many households think high interest rates are just beginning to affect their spending

Past interest rate increases are also cooling activity in the housing market. Relative to survey highs in 2022, results from this quarter reveal a lower likelihood of homeowners selling their home and moving. However, renters—particularly newcomers—continue to show widespread demand for home ownership (Chart 8). This demand is likely supporting consumers’ expectations for house price growth, which remain at the historical average.

Chart 8: Newcomers continue to boost housing demand

Consumers remain pessimistic about the economic outlook due to high inflation and high interest rates. The share expecting economic activity to decline in the next 12 months increased slightly from 55% last quarter to 61% this quarter. Negative perceptions of the economy are accompanied by high uncertainty about the economy. This uncertainty is also leading to more cautiousness and is restraining consumers’ spending plans (Chart 9). One respondent said, “I put a cushion of $1,000 for the unexpected, which is something I never did before. It’s because I’m insecure about what’s going on now.”

Chart 9: Uncertainty about the economic outlook is weighing on spending plans

Workers are less positive about the labour market, but expectations for wage growth remain high

With the economy weakening, consumers’ perceptions of the labour market have softened. Compared with last quarter, workers reported a:

  • lower likelihood of switching jobs voluntarily
  • lower chance of finding a new job
  • higher probability of losing their job

In addition, more people reported working fewer hours now than they did this time last year. One interviewee said, “I think the market is good. However, the unemployment rate has increased a bit, so it’s a sign that fewer positions are opening.”

Expectations for wage growth overall are roughly unchanged at a high level. They increased in the public sector, however, where wage growth tends to follow collective agreements (Chart 10). At the same time, expectations for wage growth in the private sector edged lower—while still high, they are clearly below their 2022 peaks. Relative to public sector workers, private sector workers reported a greater deterioration in bargaining power and more difficulty finding a job compared with this time last year. Wage expectations among workers in the private sector are likely to reflect economic conditions such as:

  • the general state of the economy
  • the market wage rate
  • their employer’s profitability

Wage growth expectations are highest among workers whose pay is adjusted for the cost of living (Chart 11). Such adjustments are more commonly reported by workers in goods-producing industries than by those in the services sector.

Chart 10: Expectations for higher wage gains are driven by public sector workers

Chart 11: Workers with cost-of-living adjustments have higher expectations for wage growth

  1. 1. The latest available consumer price index (CPI) data during the survey period was for the month of September 2023.[]
  2. 2. Both perceptions of inflation and inflation expectations have declined for consistent consumers—those who provide consistent responses to different questions about inflation expectations. Research shows that consistent consumers provide a more accurate forecast of inflation than do consumers who provide inconsistent responses. See S. Miller and P. Sabourin, “What Consistent Responses on Future Inflation by Consumers Can Reveal,” Bank of Canada Staff Discussion Paper No. 2023-7 (March 2023).[]
  3. 3. For more detail on why consumers disagree on long-term inflation expectations, see Bank of Canada, “Box 1: More people than before the pandemic expect deflation in five years,” Canadian Survey of Consumer Expectations—Fourth Quarter of 2022 (January 2023).[]
  4. 4. The correlation between actual consumer price index inflation and consumers’ inflation expectations improved to greater than 0.9 after the onset of the pandemic. For more details, see Miller and Sabourin (2023).[]
  5. 5. See N. Bédard and P. Sabourin, “Measuring financial stress in Canada using consumer surveys,” Bank of Canada Staff Analytical Note (forthcoming).[]

The Canadian Survey of Consumer Expectations gathers respondents’ views on inflation, the labour market and household finances. Additional information on the survey and its content is available on the Bank of Canada website. The survey report summarizes opinions expressed by the respondents and does not necessarily reflect the views of the Bank of Canada.

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