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The latest communications from the Bank of Canada see a brighter outlook for the country’s economy, but the central bank may be underestimating Canadian consumers, said Scotiabank Economics in a new report.

In a publication analyzing Wednesday’s rate decision, monetary policy report and press conference, Scotia said the central bank did a good job of signalling that it has likely provided adequate monetary stimulus at this point and that it will eventually be in a position to curb that support.

“I wouldn’t quite call it taper talk yet, as opposed to more of a whisper in the market’s ear, but the intent was nevertheless rather clear,” wrote Derek Holt, vice-president and head of capital markets economics, Scotiabank, who authored the report.

The signal of eventual tightening comes as the Bank of Canada upgraded its forecasts for the domestic economy and the world economy, and lowered the risk outlook, citing the early arrival of vaccines to combat Covid-19.

Yet, even with the brighter forecast, Scotia said the central bank continues to underestimate consumer spending.

“They have not had a good track record at judging how retail sales and housing markets would respond to powerful stimulus to date,” the report said.

At this point, the central bank is not expecting higher savings accumulated during the pandemic to translate into much additional consumer spending in the future, the report noted.

However, the central bank may be missing the mark on several counts. For one, the report suggested that the central bank may be underestimating the scope of additional savings.

“First, it’s not just higher income households that have saved more,” wrote Holt; adding that many of the households that the bank defines as “upper income” are actually more like middle-class households, which are more likely to spend their added savings.

Second, while the central bank indicated that foregone spending on services, such as haircuts, is gone forever, Scotia said these funds can be directed to increased goods spending.

“[Consumers] can spend it on buying more bigger ticket goods instead,” the report said. “The operating assumption here is never to underestimate the capacity of consumers to spend.”

Finally, the report said the Bank of Canada may be overestimating the extent to which excess savings will be directed to paying down debt, instead of fuelling more consumption.

“Actions speak far louder than words when assessing the behaviour of consumers and the [Bank of Canada] is indicating that perhaps it hasn’t spent enough time on assessing the actions to date as retail sales soared to a record during the pandemic and took home sales with them,” wrote Holt.

If consumer spending does surprise on the upside, inflation may trend higher sooner than currently expected, pushing a potential rate hike earlier too.

“For that audience that the Street serves, I would continue to emphasize hike risk in 2022 alongside exiting the [quantitative easing] game around the end of this year,” Holt wrote.