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The Bank of Canada released its latest Business Outlook Survey and the headline indicator dipped back to 4.98 in Q1 2022 from the record high of 5.9 it hit in Q4 2021. The BOS survey was conducted before Russia’s invasion of Ukraine and a special survey that was conducted in March showed that about half of firms said they expected to impacted by the war, mostly through higher commodity prices.
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81% of firms reported capacity pressures related to labor or supply chain challenges, a new record high.
Firms expect significant growth in wages, input prices and output prices due to persistent capacity pressures and strong demand, while there were widespread plans to increase investment spending and add staff.
Firms continued to expect strong sales growth but at a more moderate pace than over the past year.
Businesses tied to hard-to-distance services anticipate significant increases in their sales as restrictions related to the Covid‑19 pandemic ease.
The balance of opinion on indicators of future sales growth fell to 39 in Q1 from 57 in Q4 2021.
70% of firms said they expect inflation to be above 3% over the next two years, up from 67% in Q4 2021, though most predicted that it will return close to the BoC’s target within 3 years.
In its special survey on the impact of the Ukraine war, firms said they expect input costs to be hit by higher energy and commodity prices, further supply chain disruptions and many said they plan to pass cost increases on to customers.
Moreover, several businesses, predominantly those tied to energy and other commodities, expect higher sales.
In a separate BoC survey of Consumer Expectations, expectations for 1-year ahead inflation increased slightly in Q1 2022 to 5.07% from 4.89% in Q4 2021, with most respondents expecting strong spending growth to continue.
Despite greater concerns about inflation today, longer-term expectations have remained stable and are below pre-pandemic levels, the Consumer Expectations survey revealed.
