Results of the third-quarter survey | Vol. 5.3 | October 11, 2024

The Canadian Survey of Consumer Expectations was conducted through an online panel from August 6 to 23, 2024. Follow-up phone interviews took place from September 3 to 12.

Overview

• Consumers’ perceptions of current inflation and their expectations for inflation over the next year have declined this quarter, although they remain higher than they were before the COVID‑19 pandemic. In addition, expectations for inflation two years from now have declined significantly from last quarter and have returned to their pre‑pandemic level. Consumers continue to think strong government spending and elevated housing costs are contributing to high inflation.
• Perceptions of financial stress have improved and, given recent interest rate cuts and lower inflation, fewer consumers reported reducing their spending. However, consumers expect interest rates to remain elevated, which is affecting their spending decisions.
• Consumers’ perceptions about the state of the labour market have weakened further, with expectations for wage growth declining for the first time since the second quarter of 2023. Young consumers perceive a more pronounced deterioration than others do. However, overall, job prospects are close to survey averages.

Inflation expectations have eased across all time horizons

Consumers’ perceptions of current inflation (Chart 1, black line) and expectations for the next year (Chart 1, blue line) have both fallen this quarter but remain above pre‑pandemic levels. In addition, expectations for inflation two years from now have declined significantly from last quarter and have returned to their pre‑pandemic level (Chart 1, yellow line). Expectations for inflation in the long term remain anchored (Chart 1, green line).

In follow-up interviews, some respondents said they anticipate inflation will continue to ease. One person said, “Inflation was very high in past years, so I think it’s improving in the sense that it might get to a more acceptable level.”

Chart 1: Inflation expectations have eased further

Inflation expectations for key services, such as rent, meals in restaurants and entertainment, eased significantly from last quarter, while inflation expectations for key goods, such as food in stores and gasoline, eased slightly (Chart 2). However, consumers continue to expect short-term price inflation to be higher for key services than for key goods.

Chart 2: Inflation expectations for key services have eased significantly from last quarter

For the third consecutive quarter, a rising share of consumers (from 17% in the fourth quarter of 2023 to 29% this quarter) expect inflation to be within the Bank of Canada’s inflation-control target range of 1%–3% over the next year (Chart 3).

Expectations for inflation have broadly eased from last quarter. However, consumers’ views about where inflation is heading over the next 12 months are more diverse than they were before the pandemic, with more people expecting deflation or very high levels of inflation. Consumers continue to believe that domestic factors—in particular, strong government spending and elevated housing costs—are contributing to high inflation.

Chart 3: The share of consumers expecting inflation to be in the target range has continued to increase

Consumer sentiment has improved slightly from last quarter but remains subdued

Consumers are less pessimistic about their financial situation than they were in the previous quarter. Indicators of perceived financial stress improved, reversing last quarter’s deterioration (Chart 4).1 The most noticeable improvement is that fewer consumers expect their finances to worsen over the next year. This result is in line with lower inflation and recent cuts in the Bank’s policy interest rate. The share of consumers who have noticed interest rates falling over the past 12 months increased significantly (from 17% last quarter to 44% this quarter), and this share has experienced the largest drop in perceived financial stress.

Chart 4: Consumers’ perceptions about financial stress have improved

The improvement in perceived financial stress is broad-based across both renters and homeowners. Mortgage holders (roughly one-third of all respondents) are also showing signs of increased optimism about mortgage renewals. Compared with the previous quarter, fewer mortgage holders this quarter expect their mortgage payments to increase significantly at renewal, and those expecting higher payments have become more confident that they will be able to cope when they renew their mortgage contracts.

Despite these improvements, consumers continue to feel the negative impacts of high inflation and elevated interest rates on their budgets, with the share of consumers feeling worse off remaining large (Chart 5). In a follow-up interview, one person said, “Despite the Bank of Canada lowering the interest rate, I noticed that life seems as hard as before, and when I go to the grocery store, prices continue to increase.”

Chart 5: High inflation and elevated interest rates continue to constrain people’s budgets

In addition, nearly half of consumers continue to expect a recession in the coming year. Consumers do not anticipate further rate cuts, and as a result, most are still planning to reduce their overall spending and save more (Chart 6).

Chart 6: Most consumers plan to continue reducing their spending

In general, most consumers expect to spend more on essential purchases and housing costs in the year ahead, while fewer anticipate increasing their spending on discretionary items, such as restaurant meals, entertainment and vacations. During follow-up interviews, many consumers mentioned ways they are adjusting their consumption, including by reducing spending or putting off buying big-ticket items. One respondent said, “You don't want to make as many of those big purchases just because you don't know how secure your job is. Anything could really change. Just saving more, less spending.”

Even though consumers expect interest rates to stay elevated, housing market indicators remain close to survey averages (Chart 7). Compared with last quarter, fewer consumers this quarter are planning to move or sell, while intentions to buy a home are unchanged at survey average levels. Newcomers continue to report stronger intentions to buy a home over the next year than other consumers do.2

Chart 7: Home-buying intentions are unchanged at historical levels

Among renters, the following factors are commonly cited as supporting their decision to buy a home:

• high rent prices
• sufficient savings for a down payment
• more affordable mortgage rates

However, financial insecurity and high house prices remain barriers to renters’ home-buying intentions. Homeowners, in contrast, cited elevated house prices and a lack of need or desire as the main factors driving their decision to not buy a home. Among the 85% of all respondents who are not planning to buy, only 8% (mostly renters) said they would consider buying if interest rates were lower, and most of those would first need to see interest rates decline significantly (Chart 8).

Chart 8: Some consumers need much lower interest rates to trigger home-buying plans

Labour market perceptions have weakened further

This quarter, consumers reported a smaller likelihood of voluntarily leaving their job for another one, and their expectations for wage growth softened for the first time since the second quarter of 2023 (Chart 9). Both public and private sector workers reported lower wage growth expectations. For the public sector, this change marks the end of rising expectations that began in the fourth quarter of 2022. In contrast, other labour market indicators improved this quarter. Consumers’ reported probability of losing their job declined, and people searching for work are spending a little less time than last quarter doing so.

During follow-up interviews, many consumers pointed to tougher labour market conditions than in recent quarters. This change in tone compared with previous quarters also suggests that perceptions about the state of the labour market have continued to decline. However, indicators about job prospects are moving closer to survey averages.

Chart 9: Indicators of job prospects are moving closer to survey averages

Some groups of consumers perceive a more pronounced deterioration in the labour market than others do. This is especially true for youth, whose wage growth expectations have declined significantly during recent quarters (Chart 1). A young person interviewed said, “The job market is definitely getting more competitive. It's gotten more difficult to find something, even like minimum wage or not very specialized jobs.”

In line with their perceptions of the job market, young consumers also have weaker spending plans than other consumers do.

Chart 10: Young consumers’ wage growth expectations have declined significantly over recent quarters

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.