Quick take

Waning Consumer Confidence Persists

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  • After dropping 11.7 points in May, the Index of Consumer Confidence fell a further 8.8 points in June to 79.4 (2014 = 100), the lowest level in more 18 months.
  • Concerns over households' future finances rose by 2.6 per cent this month. This increase in trepidation is likely due to higher inflation expectations over the next year and elevated fuel prices. The escalation suggests that consumers are worried that their purchasing power could further erode in the coming months.
  • Many households continue to feel inflation's squeeze, with optimism over current finances dropping to 11.6 per cent. Meanwhile, those sharing a pessimistic view of their current finances increased to 32.5 percent, a 3.4 percentage points increase from last month.
  • Canadians are less confident about future job prospects. The share of confidence in future job prospects decreased this month by 2.7 percentage points, with only 18.7 per cent of Canadians positive that more job opportunities will be available six months from now, the lowest it has been in 16 months.
  • With increased interest rates and even higher interest rates on the horizon, only 12 per cent of survey respondents believed that now is a good time to purchase large-ticket items. This is a decrease of 2.8 percentage points from last month's outlook. Furthermore, positive sentiments on major spending still have a long road to recovery when contrasted with the 2019 average of 31 per cent.

Key Insights

This month recorded a decrease in the long-term (3-year) inflation expectations and an increase in the short-term inflation expectations (1-year). This signals that consumers are more worried about the immediate future regarding inflation and remain relatively confident that inflation will be under control in the long term. Inflation expectations are key as they offer two crucial roles. First, they are an essential input into wage and price-setting, as they offer a summary of where inflation is likely to be headed. Second, they are a yardstick used to assess the credibility of the central bank’s inflation objective. With this in mind, it comes as no surprise that Canadians are less confident given that inflation has embedded itself into consumer behaviour and consumption patterns, at least over the next few months.

With confidence low and the economy running hot the Bank of Canada is working hard to cool it down. Still, keeping inflation expectations anchored might not be as easy. Consumers base their expectations of future inflation on their recent experience of actual price increases. Gas and food price increases strongly impact the consumer psyche. Gas stations are a frequent reminder of current prices, and food prices at the cashier remind consumers of their purchasing power. So, if both are still on the rise, it is difficult for consumers to feel confident about the current and future economic situation.

On the other hand, fiscal policy is hard at work, with the Federal government announcing $8.9 billion in financial support. The announcement is welcomed but should be further interrogated to ensure that the "affordability plan" benefits consumers. From the consumers’ perspective, boosts to certain benefit programs and the federal government's child care and dental care programs are more of a medium to long-term solution, while inflation is a here-and-now problem. The average consumer cares about their next trip to the grocery store or gas station, not supplemental income that is due later. Therefore, fiscal spending should focus more on responding to current cost-of-living concerns and deliver targeted and temporary programs that shield vulnerable consumers financially.

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Momanyi Mokaya

Momanyi Mokaya

Research Associate

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