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Bank of Canada's Q1 Survey of Consumer Expectations Shows Most Households See the Iran War Weakening the Economy

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The Bank of Canada on Monday released its first-quarter Canadian Survey of Consumer Expectations (CSCE).

Results of a special survey conducted after the outbreak of the war in the Middle East suggest most households expect the conflict to weaken the Canadian economy and raise prices, noted Canada's central bank in a its release.

The CSCE was conducted through an online panel from Feb. 5 to 25, before the Iran war began. Follow-up phone interviews took place from Feb. 24 to March 2. This quarter's publication incorporates results from a special survey, conducted between March 26 and April 2, on how the Middle East war is affecting consumers' views and behaviors.

In Q1, before the war in the Middle East, consumers' spending plans remained muted, held back by concerns about high prices and economic uncertainty, the BoC's survey found. Still, consumers became less negative about their spending plans than in the previous quarter as downward pressure from trade tensions eased.

Consumers continued to view the labor market as soft, with concerns of losing their job still elevated. This quarter, concerns about job losses increased among workers in sectors where artificial intelligence poses a higher risk of task replacement, added Canada's central bank.

Before the war in the Middle East, near-term inflation expectations were largely unchanged and still above the survey's historical average. Expectations of strong food price inflation remain an important driver of high one-year-ahead inflation expectations.

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National Bank On What It Will Be Watching For Next Week

National Bank noted the highlight of the week ahead will be the release of Consumer Price Index data for March on Monday. It said the surge in gasoline prices, a result of the conflict in the Middle East, will likely feed a 1.2% month-on-month rise in the headline index on a non-seasonally adjusted basis. This could cause the 12-month rate to rise from 1.8% to 2.6%, the highest level since February 2025. Core inflation could remain "more stable", with both CPI-median and CPI-trim likely holding steady at 2.3% on a 12-month basis, National Bank added.Another key event will be the release of the retail sales report for February, next Friday. Based on previously released car sales data, spending on motor vehicles and parts is expected to have contributed positively to the headline figure, as is spending at gasoline stations, which could have benefited from higher pump prices, National Bank said. All told, goods outlays could have increased by 0.9% in the second month of the year. Excluding automobiles, sales could also have increased, albeit at a slightly slower pace (+0.7%), it added.National Bank will also keep an eye on the release of the March Industrial Product Price Index (IPPI) on Thursday and the Bank of Canada's first-quarter Business Outlook Survey (BOS) on Monday.

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CIBC On the Week Ahead In Canada Economics

According to Avery Shenfeld, nobody will be surprised to see headline CPI "take a big jump" in March on increases in gasoline. But, he said, it will be too soon to pick up any real news on the spillover from that for core inflation given that plane tickets that month were bought in advance, and non-food goods on the shelf had been shipped before diesel prices escalated. CIBC sees CPI up 1% in the month and 2.5% over the year, compared to a consensus of 1.1% and 2.6% respectively. The bank forecasts both CPI Core-Median and Trim will be up 2.3% year over year, compared to a consensus 2.4% and 2.3% respectively.Shenfeld said retail sales next Friday should show a "hefty" gain in February. He added while March could suffer from volume weakness outside gas stations, the Q1 picture for consumption looks to have been "quite good". While lower-income GST rebates and fuel excise tax cuts will cushion the blow, Q2 will take a hit from energy costs squeezing consumers, Shenfeld said. We'll need stronger employment numbers to get the retail sector on sustained growth path, he added. CIBC forecasts growth of 0.8% in both retail trade total and ex-auto for the month, versus a consensus of 0.9% and 0.8% respectively.CIBC also awaits the release Monday of both the Q1 Business Outlook Survey and the Canadian Survey of Consumer Expectation. Tuesday will see the auction of $16.4 billion in 3-M Bills, $5.8 billion in 6-M Bills and $5.8 billion in 1-YR Bills, followed Wednesday by the auction of $5 billion in 10-YR Canadas.Thursday will see the release of March Industrial Product Prices and Raw Materials data.

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