Quick take

Consumer Confidence Creeps Up

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  • After dropping 6.6 points in July, the Index of Consumer Confidence inched up 2.3 points in August to 75.1 (2014 = 100), breaking three months of consecutive decline.
  • Worries over households' future finances declined by 1.1 percentage points this month. This decrease in trepidation is likely due to falling fuel prices.
  • Optimism over current finances dropped to 10.7 per cent. Meanwhile, those sharing a pessimistic view of their current finances increased to 33.5 percent. This highlights the conscious nature of the consumer who is facing eroding purchasing power albeit lower pump prices.
  • Canadians are less confident about future job prospects. The share of confidence in future job prospects decreased this month, with only 16.8 per cent of Canadians positive that more job opportunities will be available six months from now, the lowest it has been in 18 months.
  • With increased interest rates and even higher interest rates on the horizon, only 10.7 per cent of survey respondents believed that now is a good time to purchase large-ticket items. While 64.3 per cent of respondents remained pessimistic, the share of cynical views has a long way to recovery compared to the average sentiment of 38.6 per cent in 2019.

Key Insights

An increase in short-term inflation expectations (1 year) signals that consumers are increasingly worried about the immediate future regarding inflation. However, with the decline in the Consumer Price Index (CPI) in July and the continued decrease in gas prices, we are likely to see worries about short-term inflation expectations decrease. This is because gas prices are a constant reminder of current prices, and households pay particular attention to gas prices when forming expectations of other prices. Therefore, with the decline in prices and continued positive captions on how inflation might be trending downwards, we could see a change in the consumer psyche to reflect this.

One data point does not indicate a trend, and cautious optimism is required. Though the news of declining gas prices and, consequently, the CPI are welcome, consumer optimism should remain measured. House rents increased 4.9 per cent in July, the most since 1989, while groceries rose at an annual rate of 9.9 per cent, up from 9.4 per cent in June. Household budgets and propensity to spend on essential goods and services are likely to continue to be strained over the coming months, particularly shelter costs as mortgage and rental prices rise due to increased interest rates. Therefore, though headline inflation is turning in the right direction, cooling off in core inflation remains critical, and the Bank of Canada will still have to raise rates to rein in inflationary pressures.

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Momanyi Mokaya

Momanyi Mokaya

Research Associate

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