Price and wage expectations continue to rise

The latest CFIB Business Barometer shows that, as the re-opening process got underway, firms’ selling price expectations surged in June. Firms now expect to raise their prices by an average of 4.7% over the next 12 months, which is by far a record high. This reinforces our view that price inflation will continue to surpass most forecasters’ expectations over the summer, but the more modest rise in wage expectations suggests that higher price inflation may not be sustained. That said, with a growing share of firms suffering from labour shortages, it is clearly possible that wage growth will accelerate by more than we expect over the rest of the year. If that is the case, then it will reduce the likelihood that, as we currently assume, the Bank of Canada delays its first interest rate hike until early 2023.