July 7 (Bloomberg) -- Canada's inflation rate will exceed the top end of the central bank's target band over the next two years, a record number of company executives polled by the Bank of Canada said.

Thirty-six percent of business managers said inflation will accelerate more than 3 percent, the highest reading since the Bank of Canada started asking the question in mid-2001. Half of the executives expect inflation from 2 percent to 3 percent, and some 13 percent saw price increases of less than 2 percent.

Bank of Canada Governor Mark Carney on June 10 stopped cutting interest rates after four prior reductions, and today's report pushed up the country's dollar on signs his next move may be an increase. Carney has said inflation may exceed the upper limit of the bank's 1 percent-to-3 percent band this year unless energy costs moderate. The next decision from the Ottawa-based bank is July 15.

``The inflation measures were even worse than what you might have expected,'' said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. ``It's just another piece of evidence on the side for the hawks, which will continue to tilt the bank's bias toward eventually raising rates.''

Canada's dollar rose 0.3 percent to C$1.0173 per U.S. dollar at 2:21 p.m. in Toronto, from C$1.0199 on July 4.

Carney may not act until next year because weak U.S. demand for Canadian goods is slowing economic growth, Porter said.

Pass Costs On

A record number of company executives also said they are seeking bigger price increases for their own goods.

``Many firms plan to at least partially pass their higher costs through to their output prices, and they expect their competitors to do the same,'' the central bank said today in its Business Outlook Survey. The poll of about 100 executives was taken from May 20 to June 13.

Forty-two percent of executives plan greater price increases over the next year, compared with 22 percent planning to raise prices at a slower pace.

The price of crude oil reached a record $145.85 on July 3, a boon to western provinces such as Alberta where companies are developing tar sands deposits. Higher energy costs are an obstacle for Ontario and Quebec in central Canada, provinces which depend more on manufacturing.

Thirty-seven percent of executives expect faster sales growth over the next year versus 33 percent predicting slower gains. That's a rebound from the last survey in April, which showed more companies expected slower sales growth for the first time since the end of 2001.

The share of companies planning to buy more machinery and equipment over the next year rose to 40 percent from 28 percent, led by ``restructuring'' in central and eastern Canada, the report said.

High energy costs are also hurting consumer confidence, which fell to a 13-year low in June, a separate poll released today showed. The Conference Board of Canada's index fell 6.2 points to 79.6, the lowest since the fourth quarter of 1995, the Ottawa-based group said.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

Last Updated: July 7, 2008 14:35 EDT