Canada's economy is on the cusp of strong demand, says Bank of Canada survey

OTTAWA, Oct. 18 Reuters - Canadian companies anticipate stronger demand as the COVID - 19 pandemic fades, but many say supply constraints will limit sales and put upward pressure on costs, a regular Bank of Canada survey said on Monday.

The Central Bank's Business Outlook Survey Indicator hit its highest level of record in the third quarter survey, getting 4.71 from 3.96 in the second quarter.

Positive business sentiment is common across regions and sectors. Most firms are forecasting growth in domestic and foreign demand, especially from the United States, said the survey.

More companies are facing supply-side challenges such as labor shortages, it added. Supply chain disruptions are more prevalent, and many businesses expect that they will continue until the second half of 2022.

These constraints affect the business and the cost structure of sale. A growing number of respondents plan to increase wages to address challenges in attracting and retaining labor, it said.

Firms intend to continue passing increases in labor and other input costs on their customers, it said.

Around 45% of the respondents stated they anticipated inflation to increase over 3% in the next two years, with half see the drivers of that inflation as temporary.

Bank of Canada Governor Tiff Macklem said last week that supply chain bottlenecks were not at ease as quickly as expected, meaning inflation would take a little longer to come down. In August, the annual inflation rate of 4.1% hit an 18 year high of inflation, far above the bank’s target of 2%.

A separate survey of consumer expectations by Canadians at the central bank announced that inflation would hit 3.72% for the next year. This is a record high for the survey.

The traditional business survey was conducted of about 100 firms from 20 August to Sept. 16.