As Canada’s vaccine rollout gains even further momentum and public health restrictions continue to be lifted, businesses across the country have become increasingly optimistic about the country’s economic prospects.
The Bank of Canada’s latest quarterly Business Outlook Survey indicator soared to 4.2— the highest on record, suggesting that the growing vaccine uptake is spurring further confidence in the country’s economy. Although there continues to be excess labour supply in the economy, the survey found that the number of businesses planing to ramp up hiring have also surged to a record-high, particularly as expectations of accelerating sales growth increase.
However, businesses are also reporting several sources of growing price pressures— suggesting that consumers may soon experience significantly higher costs for goods and services. Firms’ expectations of an acceleration in wage growth have jumped to historically-elevated levels, and are broad across all sectors and regions. The survey’s respondents noted that the main factors affecting current wage growth are a need to attract and maintain skilled labour, a sharp increase in living costs, as well as a rebound in sales activity.
Canadian businesses are also anticipating a sharper increase in both input and output prices, albeit less widespread than what was reported in the central bank’s spring survey. Firms are expecting their input costs will rise due to ongoing upward price pressures for commodity products such as lumber, energy, and food, as well as increasing freight and shipping fees. As a result, businesses are planning to pass down some of the higher costs to consumers, especially amid strengthening demand conditions.
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The Business Outlook Survey found that inflation expectations among Canadian firms soared to a near-record high, as one-third of businesses now forecast inflation will remain above 3% over the next two years, while over half of the survey’s respondents expect price pressures will be consistent with the Bank of Canada’s target range.
The latest quarterly survey results suggest that Canada’s economy is on a strong path to recovery, especially as all businesses surveyed said they are not foreseeing a deterioration in anticipated demand. This may prompt the Bank of Canada to further taper its expansionary monetary policy, after becoming the first among developed economies to already do so.
Information for this briefing was found via the Bank of Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
