Canada’s GDP grew 3.1% in the first quarter of 2022 as business investment and household consumption continued to boom while energy exports dragged, according to data released by Statistics Canada on Tuesday.

The figure was in line with the Bank of Canada’s forecast but noticeably under market expectations. While COVID-19 government support largely ended in 2021, household income and employer contributions to pensions grew by more than household spending, and as a result household savings stood at a bolstered 8.1% in the first quarter. By comparison, household savings averaged 3.5% prior to 2020.

Employee compensation grew 3.8%, up from 2.0% in the fourth quarter of 2021. While good news for workers, the increase in wages reflects rapidly rising long-run inflation expectations and is a warning sign of inflation becoming more entrenched in the economy.

As a result, the GDP data should not alter the Bank of Canada’s rate decision on Wednesday because domestic demand remains solid, unemployment is still at a historic low, and inflation is running red hot.

March’s GDP grew 0.7% from February, with broad-based increases observed in most sectors across the goods and services-producing industries.

Client-facing industries grew with easing public health restrictions. including accommodation and food services, entertainment, and especially air travel.

The stunted growth in the first quarter was caused mostly by public health restrictions in January and February. Many restrictions were lifted in March and almost all were removed in April as the economy reopened and venues could operate at full capacity.

Therefore, the upcoming months will continue to see healthy spending in these areas as gathering and travel tend to peak in the summer and there is still sizeable pent-up demand among Canadians. With persistent inflation and rising interest rates, however, household savings could dwindle, potentially hampering the growth outlook.