Canadian Survey of Consumer Expectations—First Quarter of 2024

Results of the first-quarter survey | Vol. 5.1 | April 1, 2024

This survey took place between January 25 and February 14, 2024. Follow-up interviews were conducted from February 19 to 27, 2024.

Overview

• Consumers believe inflation has slowed, but their expectations for inflation in the near term have barely changed. Consumers link their perceptions of slowing inflation with their own experiences of price changes for frequently purchased items, such as food and gas.
• Expectations for long-term inflation have increased, though they remain below their historical average. Relative to last quarter, consumers now think that factors contributing to high inflation—particularly high government spending and elevated home prices and rent costs—will take longer to resolve.
• Canadians continue to feel the negative impacts of high inflation and high interest rates on their budgets, and nearly two-thirds are cutting or postponing spending in response. Although weak, consumer sentiment improved this quarter, with people expecting lower interest rates. As a result, consumers are less pessimistic about the future of the economy and their financial situation, and fewer think they will need to further cut or postpone spending.
• Improved sentiment is also evident in perceptions of the labour market, which have stabilized after easing over recent quarters. Workers continue to feel positive about the labour market and, with inflation expected to be high, they continue to anticipate stronger-than-average wage growth.

Consumers believe inflation has fallen further, but their near-term expectations show little change

Canadians perceive that inflation has decreased since last quarter, but their expectations for inflation in the near term have not changed much (Chart 1). Typically, changes in perceptions of inflation influence consumers’ expectations for near-term inflation, but this relationship has diminished in recent quarters.

Consumers frequently reported that their own experience with prices when they shop is a key contributor to their perceptions of inflation (Chart 2). People pay close attention to price changes for frequently purchased items. In this quarter’s survey, about 60% said food prices play a very important role in their perceptions of inflation, while just under half said gas prices and rent and housing costs are very important.

Expectations for price growth for some frequently purchased items, such as food and gas, have eased since last quarter (Chart 3). These lower expectations are likely influenced by consumers’ perceptions of slowing price growth for these essential items. As one person said in a follow-up interview, referring to food prices, “Things are not going up as quickly as they were—price increases I see this year are smaller than last year.”

Although they perceive inflation to be falling, consumers still expect near-term inflation to remain high. In follow-up interviews, they said high interest rates are contributing to their expectations that inflation will remain elevated in the near term. One respondent explained, “It’s interest rates that Canada is imposing on us. That, for me, contributes to inflation.”

Expectations for inflation in the long term increased for the first time since the second quarter of 2022; nevertheless, they remain slightly below average. The share of consumers expecting long-term inflation to be above 5% increased from 37% to 41%. Consumers continue to view high government spending and elevated home prices and rent costs as the main causes of high inflation. Relative to last quarter, consumers expect these trends will take longer to resolve.

High inflation and high interest rates continue to impact consumers, but sentiment is improving

Consumers still feel the negative effects of inflation and interest rates on their spending, and the cost of living remains their top financial concern. However, the share of consumers feeling worse off is slightly smaller than it was last quarter—a sign that the negative impacts of inflation and interest rates are no longer broadening (Chart 4).

Consumers continued to report changing their behaviour to cope with high inflation and high interest rates. In follow-up interviews, they mentioned actions intended to preserve their purchasing power, such as:

• limiting the use of a vehicle to save on gas
• spending less at restaurants
• shopping at more than one place to benefit from sales
• getting groceries less often and buying larger quantities each time

Similarly, the share of consumers who made a major purchase over the past six months declined slightly, and intentions to make one in the future remain muted. However, consumers continue to expect to purchase services such as vacations or major events, especially those consumers who say they had been delaying these purchases for a while.

At the same time, confidence about the economic outlook improved, suggesting a possible turnaround in consumer sentiment. This change is mostly due to consumers expecting interest rates to be lower, and it follows several quarters of record-high expectations for interest rates.

As a result of the improved rate outlook, consumers reported feeling less pessimistic about their financial situation. Various indicators of household financial stress show some signs of improvement compared with a year ago, when the level of stress was abnormally high (Chart 5). Nevertheless, financial stress remains high relative to the history of the survey and is a key concern among consumers. Such stress can impact households, notably through their consumption plans.1 In a follow-up interview, one person said, “We aren’t worried about missing a payment, but in order not to miss one we need to cut spending and save more.”

Mortgage holders also showed lower levels of financial stress this quarter. This likely reflects declining expectations for interest rates. Fewer mortgage holders—23% in the first quarter of 2024 compared with 31% in the fourth quarter of 2023—expect a major increase in their payments at renewal. They also continue to be confident that they will be able to cope with the increase in payments when they renew their mortgage.

Similarly, Canadians have become less pessimistic about the economy. The share of consumers who expect economic activity in Canada to decline over the next 12 months went from 62% to 52% this quarter (Chart 6).

The improvement in consumer sentiment is also evident in spending plans. Although most consumers continue to report changes in their consumption, in this quarter’s survey the share planning to decrease spending and save more because of their expectations for interest rates and inflation declined slightly (Chart 7). These results suggest that consumers might think they do not need to cut their spending further, or not as much as before.

Although interest rate expectations have fallen, they remain high relative to before the COVID‑19 pandemic, and they continue to weigh on intentions to buy a house. In addition to high mortgage costs, consumers cite other barriers to home ownership, including:

• high home prices
• limited availability of homes
• considerable difficulty for renters to save for a down payment

Despite these barriers, intentions to buy a home have increased since 2023 (Chart 8). This pickup is likely driven in part by newcomers, who typically have stronger buying intentions than other Canadians.2

Survey respondents also indicated they continue to anticipate that home prices will increase at about the same pace as expected before the pandemic.

Labour market perceptions have stabilized

After softening in the past few quarters, consumers’ perceptions of the labour market appear to have stabilized. Most indicators of labour churn, such as the probability of finding or losing a job, remain roughly unchanged from last quarter (Chart 9).

Although the time people spent looking for a job increased from last quarter, overall, workers remain more confident about their employment prospects than they were historically. They continue to expect stronger-than-average wage growth, and they reported an above-average likelihood of voluntarily leaving a job. But while they still see job offers, some are skeptical about the quality of these opportunities. In a follow-up interview, one respondent remarked, “I heard that employment is still rising in Canada, so it seems like the job market is still going well. However, not sure if the new jobs are good-paying jobs.”

Wage growth expectations are at a survey high of 2.8%. The cost of living remains the most important factor for workers when they think about their expectations for wage growth. Although employees in the public sector continue to report lower wage growth expectations than those in the private sector (2.3% compared with 3.2%, respectively), in recent quarters expectations have increased more quickly among public sector workers than private sector workers (Chart 10). The stronger growth in the public sector could be driven by collective bargaining agreements.

Endnotes

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.