(Ottawa) Two new reports from the Bank of Canada suggest that business and consumer expectations for inflation are moderating, but a potential recession continues to weigh on the economic outlook.

Polls released Monday show inflation expectations are easing, but consumers and businesses continue to expect inflation to stay above 2.0% at least through 2025.

The Bank of Canada is closely monitoring inflation expectations in the economy, concerned that inflation could become more persistent if businesses and consumers continue to expect rapid price increases.

The central bank has been aggressively raising interest rates since March 2022 to suppress rapidly rising prices. It is currently holding its key interest rate at 4.5% and does not plan to raise it again, as long as inflation slows down fast enough.

With its policy rate at its highest level since 2007, rising borrowing costs are expected to further constrain consumers and weigh on business activity in the coming months.

Central bank surveys show that consumers with adjustable rate mortgages, Indigenous people, people with disabilities and racialized people are more likely to report being affected by high inflation and high interest rates.

With a potential recession looming, surveys show consumers expect to cut spending and businesses anticipate slower sales.

And while labor shortages remain the second biggest problem facing businesses, surveys show signs of easing in the labor market as businesses no longer expect rising wages drive up inflation.