More than two-thirds of Canadians believe the country is heading for a recession, a new Yahoo/Maru Public Opinion poll has found, in the wake of rapidly rising interest rates and soaring inflation.
The survey of 1,515 Canadians, conducted between June 17 and June 19, found that 68 per cent believe the country is heading towards a recession. Another 17 per cent say the country is currently experiencing a recession, while 15 per cent say they are not concerned about a recession nor do they believe Canada is in the midst of one.
The results come as the Bank of Canada tries to rein in skyrocketing inflation that has seen food, shelter and gas prices rise at a pace not seen for decades. The Consumer Price Index (CPI) increased 6.8 per cent on a year-over-year basis in April, and economists widely expect it rose even more in May, a month that saw gas prices soar to fresh highs.
BMO Capital Markets chief economist Douglas Porter said in a note released last week that he expects a 12 per cent increase in gas prices in May to lift inflation to 7.4 per cent. Statistics Canada will release May's inflation data on Wednesday.
Rising costs have pushed a majority of Canadians to reduce spending, the Yahoo/Maru Public Opinion poll found. A majority of those surveyed (56 per cent) have set stricter priorities and have reduced spending due to inflation, with food topping the list in terms of which spending category has been most affected. Most Canadians are also adjusting their entertainment spending (55 per cent), clothing and footwear budget (54 per cent) and the amount they spend on gas (53 per cent).
Skyrocketing prices are leaving most Canadians (56 per cent) worried that it will cause them serious financial issues. Slightly more than one in 10 (13 per cent) say they are panicked over inflation.
The Bank of Canada has embarked on an aggressive path to tighten monetary policy in the wake of soaring inflation. The central bank raised its benchmark rate by 50 basis points on June 1, the second consecutive outsized hike that brought the policy interest rate to 1.5 per cent.
But most Canadians are not convinced that the Bank of Canada's plan will work to tame inflation. The poll found that a majority (56 per cent) are concerned that rising interest rates will plunge the country into a recession, while 44 per cent say that the rate hikes will cool the rate of inflation and avoid a recession.
The Bank of Canada has warned of more hikes to come, saying on June 1 that it is "prepared to act more forcefully if needed to meet its commitment to achieve the 2 per cent inflation target."
Continued rising inflation may push the central bank to follow the Federal Reserve's footsteps and hike its benchmark interest rate by 75 basis points when it issues its next decision in July.
"We suspect that this will be enough to convince the Bank of Canada to also unleash a 'highly unusual' 75 basis point hike next month," Porter wrote.
The Yahoo/Maru Public Opinion survey of 1,515 Canadian adults has an estimated margin of error of +/- 2.5 per cent, 19 times out of 20.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.