Expectations of inflation, wages and spending: Evidence from a consumer survey

• Higher expected price inflation is associated with lower expected household spending. • Conversely, higher expected wage growth is linked to higher expected spending. • These relationships became stronger during the high-inflation period. • Higher expected inflation is linked to postponing purchases and cutting back spending. Using household-level data from the Canadian Survey of Consumer Expectations over 2014Q4– 2022Q3, we provide insight into the formation of expectations for inflation, wage and spending growth. The literature has documented that households associate higher expected price inflation with worse economic conditions, but that higher expected wage inflation is linked to better economic outcomes. Our paper finds that these views extend to households’ spending decisions: higher expected price inflation is also associated with lower expected household spending, while higher expected wage growth is linked to higher expected spending. These relationships became stronger during the high-inflation period.