The surveys are the outcome of the central bank's quarterly polling of Canadian businesses and consumers to gauge their views on what's going on in the country's economy.
In Business Outlook Survey reports released Monday, the central bank stated that Canadian businesses' assumptions for near-term inflation have increased, and businesses presume inflation to continue to climb for longer periods of time than they did in the previous survey.
While the results of the two surveys differed, the common factor in both was inflation and its impact on sales and purchases, recruitment, and employee dismissals.
Furthermore, according to the report, an increasing number of businesses mentioned rising living expenses as a primary factor of income growth, with half expecting future growth. According to the report, businesses expect sales growth to slow and return to normal following the pandemic's quick recovery.
Businesses anticipate that Canada's inflation rate will remain above five percent a year from now and above four percent two years from now. However, they expect inflation to return to the central bank's target range of one to three percent in five years, according to the survey.
Wages are expected to rise as the cost of living soars
The central bank received reports from nearly two-thirds of businesses regarding labor shortages. Almost half (43%) report supply chain delays that are taking far longer than expected to resolve. This year, business owners predict that labor costs will rise 5.8 percent. This is significantly higher than the two percent pay increase reported to the bank by customers.
Many businesses have stated that they intend to raise wages in order to address underemployment. As a result, businesses expect faster wage growth.
“Many firms continue to report plans for raising wages to attract and retain workers,” according to the bank's report.
The survey results also show businesses are reorganizing their supply chain operations and carrying more stock than usual in response to the current situation, and a number of large corporations plan to invest and recruit new workers.
People, unlike businesses, do not confidently predict salary increases to keep up with rising prices of daily necessities such as food, gas, and rent, according to the bank's Canadian survey of consumer expectations.
"Workers do not anticipate their wage gains will keep up with inflation," the bank added. Those in the private sector believe their wages will rise faster this year than those in the public sector.
Consumer sentiment is also being influenced by expectations for higher inflation and rising interest rates, according to the consumer report.
The bank discovered that lower-income Canadians and older people are more concerned about food costs and rent than younger participants and higher-income families.
The findings, according to TD Bank economist Leslie Preston, demonstrated how dissatisfied consumers are with inflation today. They are unable to keep up with inflation and are forced to cut back.
"This survey suggests consumer spending in real terms is likely to slow in the coming months as wages can't keep up with inflation, and households are already being forced to economize," she explained.
On the same note as what Preston said, the report showed that consumers, particularly those with low incomes, are adapting to high inflation by reducing spending, deferring big purchases, searching for discounts, and assessing cheaper options.
“Some consumers mentioned sticking to a strict budget for groceries by buying more generic products or not buying items deemed less necessary. Some are relying more on gardening for food or using cheaper forms of commuting, like biking,” the report suggested.