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Canadians feel like they are spending the summer. What does that mean for inflation

For many, it is the first summer since the beginning of thepandemicthat the travel ban has been lifted and the world feels reopened.

So, when it's time to check out and your plane ticket is twice your budget, do you want to cancel your plan?

Or do you say anything and click Buy?

The answer for decades ofinflationCanadians, who have been in high demand for travel and other experiences after decades of a pandemic blockade. Seems to be embarking on a "buy now".

Read more: Canada Day barbecue could shift to "hot dogs, not steaks" due to intense inflation

However, experts say that the surge in demand for consumer spending could make efforts to bring rampant inflation back into a more difficult battle.

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TD Economics released a report this week tracking spending data leading to the busy summer months.

May real spending increased 15% year-on-year, with TDs rising to 7.7%, the highest price in nearly 40 years atthat month. Reached) suggested. It has not yet reached the point of grabbing consumer demand.

TD said spending shifted from a desire for goods to services as Canadians tried to buy things for their homes during the blockade.

Recreation and entertainment demand are leading the price, with spending in this category 40% higher than pre-pandemic levels (nominal, inflation-adjusted). Means).

TD's senior economist, Leslie Preston, was one of the authors of the report, and after years of being denied the opportunity to go out and spend money, Canadians said, " Itching. "

" I think there is a lot of disgusting demand, "she says.

"People gathered with friends and made a lot of sacrifices in the two years of the pandemic prior to many kinds of experiences, so even if inflation was much higher than before, that's the case. I think there is a real desire to resume a pandemic. ”

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GasBuddy's oil analyst Patrick DeHaan Earlier this week, he told Global News that he had never seen a record high gasoline price maintained. Many Canadians have returned from the expedition, calling the coming summer "abnormal."

"Because COVID closed part of the economy in the summer of the last two years, Canadians are really itchy to get out on the road this summer, even considering rising prices. "I will."

Read more: 7 out of 10 drivers worry they can't afford gas because of soaring prices Polls show that

higher spending supported by pandemic savings

offset the pinch in the pump One of the factors is the significant level of savings that many households have earned. Stephen Brown, Senior Canadian Economist at Capital Economics, has said for the past two years.

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"If you haven't been on vacation for the last two years ... maybe they're on this holiday from last year What they saved, and they may spend more than usual, "he told Global News.

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But these pandemic nest eggs could help drive Canadians into a fun summer season. But the ability to spend through bright red inflation can undermine efforts to cool demand.

The Bank of Canada, like other central banks around the world, is in the midst of an interest rate hike cycle aimed at removing some momentum from the economy. By raising interest rates and raising borrowing costs, it seems to curb spending and reduce demand that drives inflation.

The economy can respond to further interest rate hikes, Bank of Canada Governor said – June 9, 2022

Canadians Willing to absorb higher interest rates According to Brown, costs in high inflation complicate the calculation as the central bank plans to raise interest rates further.

"It definitely makes the job of the Bank of Canada difficult."

Preston said in other regions, even if spending is relatively high in certain sectors of the economy. If there is a recession in Canada, the service-rich summer may not be the end of the world for Bank of Canada.

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"Overall consumer spending is slow, but preference for these more activities from homes, commodities, etc." There is a change in the number of people, like many entertainment and travel-type activities, that were constrained during the pandemic, "she says.

Despite the hot summer, TD predicts that interest rates will begin to rise in the fall.

Preston said higher mortgage payments and other financial distress that hits the average household could exacerbate the typical slowdown in consumer spending. I am.

"I think (inflation) could be a little stubborn this year, but we expect inflation in both headlines and cores to slow in 2023. The housing market is It's already slowing down, which will filter inflation, "she says.

Labor market tensions under summer demand

But increased spending on restaurants and hospitality vacations this summer , TD Note, which may also affect the already tense employment market.

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Canada's low unemployment rate already has companies struggling to fill the shift this summer increase. In its latest business barometer reportreleased Thursday by the Canadian Federation of Independent Enterprises (CFIB), a key factor limiting the growth of half of the SMEs surveyed is a lack of skilled workforce. Said.

"Many companies are understaffed, and Canadians want to do it because they don't have enough staff to run tours or have full capacity in restaurants. You may not be able to perform all activities, "says Preston.

CFIB survey respondents said they plan to raise wages by an average of 3.7% next year in difficult working conditions. Meanwhile, prices are expected to rise 4.4%.

Read more: Federal spending encourages inflation, but it's worth the blow: Desjardins

Mr Brown says it is an important factor in monitoring the Bank of Canada's attempts to curb inflation expectations.

If Canadians and businesses expect inflation to continue to rise in the long run, wage demand can rise to catch up. Second, prices need to rise to cover these costs, which can lead to a virtuous cycle of inflation.

As a result, Mr Brown says he expects the central bank to remain "relatively hawkish" this fall. It doesn't have to rise indefinitely to catch up with inflation.

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"Probably until October (rate hike) to make sure the conditions are in place for the economy to slow down. ) Will continue, and prices will fall again. "

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