Results of the fourth-quarter survey | Vol. 2.4 | January 17, 2022

This survey took place in November 2021 before the Omicron variant of COVID‑19 began spreading broadly in Canada.1 In December, the number of COVID‑19 cases rose dramatically and governments began to reimpose containment measures.

Overview

• Many Canadians think inflation will be high over the next two years because of supply disruptions caused by the pandemic. They are more concerned about inflation now than they were before the pandemic and believe it has become more difficult to control.
• Near-term inflation expectations are not feeding into longer-term expectations. This suggests that expectations remain well anchored.
• Although consumers anticipate significant price increases in the near term, they believe their wage increases will be relatively stable.
• Showing confidence in the labour market, workers are more likely than ever to want to change jobs. Another sign of strength in the labour market is that most people are working more hours than they would like to. Marginalized individuals, however, want to work more hours than they currently do.
• Consumers continue to anticipate strong spending growth. However, even before the arrival of Omicron they had lowered their expectations for spending on in-person services such as travel.

Inflation is anticipated to be high for the next two years, but long-term expectations remain well anchored

Canadians’ expectations for inflation one year and two years from now have reached survey-high levels (Chart 1). Respondents often tied recent price increases to ongoing supply chain issues—issues they expect will last until the pandemic is over.2 Consumers are more concerned about inflation than they were before the pandemic because they are feeling the pinch of higher prices (Chart 2). In follow-up interviews, respondents said they are seeing rapid price increases mainly for frequently purchased essentials such as food. Basic food staples are hard to do without or to replace with something different.

Chart 1: Inflation expectations have increased at all horizons

Note: This chart presents median values. For an explanation of the computation, see the Overview. The Overview includes the survey questions. This chart is available by demographic characteristics.

Chart 2: People are more concerned about inflation than they were before the pandemic

Canadians also believe that it is tougher for public authorities to control inflation now than before the pandemic (Chart 3). They see unprecedented external factors affecting authorities’ ability to control inflation, including:

• the persistence of the pandemic and associated supply chain issues
• a lack of global coordination for vaccinations
• fiscal policy objectives that are currently not aligned well with monetary policy
• climate change

Compared with before the pandemic, inflation has become the most important economic variable to Canadians, ahead of jobs and taxes. People are looking for information about inflation more frequently than earlier in the year. And considerably more respondents in this survey reported hearing bad news about inflation.

Increases in near-term inflation expectations, however, are not feeding into longer-term expectations. This suggests that inflation expectations remain well anchored. Expected inflation five years from now increased slightly but remains below the pre-pandemic average. Canadians generally feel that once the pandemic ends, the Bank of Canada will be able to achieve its inflation target.

Chart 3: Canadians think inflation has become more difficult to control

Workers do not anticipate stronger wage growth even though inflation expectations are higher

While Canadians anticipate significant price increases in the near term, workers think wage increases will remain moderate (Chart 4). This suggests that Canadians do not expect to see a link between higher inflation and higher wage growth.

Chart 4: Workers continue to expect moderate wage increases

* Earnings refers to earnings in the same job, for the same hours worked, before taxes and deductions.
Note: This chart presents median values. For an explanation of the computation, see the Overview. The Overview also includes the survey questions. This chart is available by demographic characteristics.

The expected moderate pace of wage gains is attributed to several factors:

• Most workers reported that their pay is not adjusted for inflation (Chart 5).
• In follow-up interviews, respondents indicated that they see little upward pressure on wages because employers continue to be negatively affected by the pandemic and related supply disruptions.
• In recent quarters, new hires, some with limited experience, have reported strong expected wage gains (Chart 6). These expectations have increased relative to those of earlier quarters, consistent with a tightening labour market. In contrast, workers with longer job tenures, who make up most of the workforce, still anticipate muted wage growth. Workers generally continue to cite a similar level of bargaining power compared with before the pandemic.

Chart 5: Most workers' pay is not adjusted for inflation

Chart 6: New hires expect larger wage gains than long-time employees do

Likelihood of workers changing jobs reached a new high

The likelihood that workers will switch jobs has reached a record-high level (Chart 7)—a sign of confidence in the labour market. The increased probability of workers leaving their job may also reflect the release of pent-up demand for a job change by some workers who decided to stay in their current job earlier in the pandemic. Workers may also be more interested in changing jobs now because a tighter labour market offers more opportunities. Despite these positive views, workers’ expectations for losing their job remain above pre-pandemic levels.

Chart 7: Workers’ views on employment point to higher job turnover ahead

Note: This chart presents median values. For an explanation of the computation, see the Overview. The Overview also includes the survey questions. This chart is available by demographic characteristics.

Another key measure of labour market strength is the gap between the actual and desired average numbers of hours of work. Most people are working more hours than they would like to, particularly those who are already working more than 40 hours each week (Chart 8). However, this gap is smaller than it was before the pandemic. Visible minorities, Indigenous people and people with disabilities, in contrast, are working fewer hours than they want. This suggests that they are in a more precarious situation than other workers, in part because they may be involuntarily working part time.

Chart 8: Overall, people are working more hours than they would like to

Consumers are planning to spend significantly more

Consumers expect the growth in their spending to continue to be strong (Chart 9). This may reflect the anticipated use of extra savings—consumers intend to spend about one-third of their extra savings accumulated during the pandemic by the end of 2023. Strong growth in spending intentions may also be linked to expectations of further rapid price increases. As in recent quarters, the difference between expected spending and income growth is wide. To help bridge any gap, consumers may be planning to increase their borrowing as well as to use their savings.

Chart 9: High rates of spending growth are expected

* Household income refers to total income from all sources before taxes and deductions.
Note: This chart presents median values. For an explanation of the computation, see the Overview. The Overview also includes the survey questions. This chart is available by demographic characteristics.

Even before the Omicron variant began to spread in Canada, the shift back to pre-pandemic spending patterns may have been slowing. The share of consumers expecting to spend more on in-person services, such as dining in restaurants and travelling, remained positive but softened in the fourth quarter of 2021 (Chart 1). This may reflect a return to normal spending on in-person services after a period of elevated spending that began when some pandemic containment measures were lifted in the summer. As well, in follow-up interviews, respondents said they are limiting their plans to travel, especially abroad. They cited a lack of clarity about COVID‑19 restrictions and concerns about frequent changes.

At the same time, the share of respondents expecting to spend more on goods (such as groceries, furniture, appliances, cars) increased significantly. Some said that as restaurant prices have increased, they have reduced their consumption of restaurant meals and are now spending these savings on groceries.

Supply chain issues, including shipping delays caused by flooding in British Columbia, are limiting consumers’ shopping choices. In interviews, people noted that they often see empty shelves at grocery stores and generally find less selection than usual for products. They also reported recently experiencing delivery delays for online purchases; as a result, they are shopping locally more often.

Chart 10: Expected growth of spending on in-person services has eased

* Percentage of respondents reporting higher spending minus the percentage reporting lower spending

Endnotes