Consumer Confidence Hits Its Highest Point in Nine Months

Key Insights

Households have taken notice of the Bank of Canada’s pause. As inflation continues to trend downwards, falling to 5.2 per cent year-over-year in February, the Bank of Canada decided to pause rate hikes in March. On the heels of this news, we have seen improvements in consumers’ outlooks for their current and future finances. In March, we saw the most significant changes occurring in consumers’ outlooks of their future finances, with 3.8 percentage points fewer people holding poor outlooks than previously. This drop is likely tied closely with the pause announcement. With the pause, households are likely less worried about the rising risk of insolvency as they see this pause as a chance to catch up on their debt burden, which has increased dramatically following the series of hikes. This logic coincides with our results as we see respondents from British Columbia—the province with the highest average debt-to-disposable income ratio—demonstrating the most significant growth in consumer confidence this month.

Canada’s upcoming Federal budget could be a double-edged sword for confidence. Finance Minister Freeland expressed that this year’s federal budget would be “exercising fiscal restraint” and highlighted focuses on building a greener economy and “targeted inflation relief,” among others. Inflation relief is of particular interest as it could alter consumer confidence. While actions to offset some of the rising costs on consumers could benefit confidence, they could also dampen outlooks. Such a move could undermine the Bank of Canada’s efforts to rein in inflation by pushing prices higher through the consumer demand channel. The upcoming budget may also impact future job prospects. The movement towards a clean economy relies largely on skilled labour. However, this again could push inflation as the already tight labour market with heightened demand for labour could augment wage growth and reintroduce concerns of a wage-price spiral.