What do consumer, business sentiment mean for a possible rate cut?
![Bank of Canada reveals latest inflation expectations](https://cdn-res.keymedia.com/cdn-cgi/image/w=1000,h=600,f=auto/https://cdn-res.keymedia.com/cms/images/us/074/0343_638566588268593290.jpg)
Business and consumer expectations indicate inflation is likely to remain muted in the months ahead, according to the Bank of Canada’s latest survey, leaving the path clear for potential interest rate cuts.
The central bank said in its survey of consumers, released on Monday, that many Canadians cut down on spending in the second quarter amid lingering concern over the economic outlook.
Meanwhile, companies’ input and selling prices are expected to continue moderating, with investment spending plans below average and business owners adopting a largely gloomy view of the economy’s future.
While the percentage of firms expecting a recession in the year ahead dipped compared with the Bank’s first-quarter survey – dropping to 20% from 27% in Q1 – expectations for sales growth remain especially low among companies whose income relies on discretionary, rather than essential, consumer spending.
The fact that most inflation indicators are signalling further moderation ahead is “perhaps most important” for the Bank as it weighs up a potential rate cut on July 24, according to Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen.
The latest US inflation data, showing a slowdown to 3% in June, has sparked expectations of interest rate cuts by both the US Federal Reserve and the Bank of Canada (BoC). https://t.co/NGL73dan5S#economicoutlook
— Canadian Mortgage Professional Magazine (@CMPmagazine) July 12, 2024
He highlighted the fact that surveyed companies largely expected inflation to fall within the central bank’s target range over the next two years – even if that share fell from 59% in Q1 to 55% this time around.
With the Q2 survey “broadly confirm[ing] a softening economic backdrop, a cut next week remains the likeliest move, Janzen said. “The data should help reinforce that interest rates no longer need to be as high as they are to get inflation sustainably under control,” he wrote – although he added that the central bank will be closely watching tomorrow’s (July 16) inflation figures in case of “significant upside surprise.”
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