Firms in BOC Survey Expect Weak Inflation Over Next Two Years

Canadian executives are reporting some of the weakest inflation expectations on record, even as they say the worst damage from a crude oil bust may be over, according to a central bank survey.

More companies were upbeat about future sales prospects, as well as plans to buy equipment and hire new workers, the Bank of Canada’s third-quarter Business Outlook Survey found.

“There is a widespread view among firms that inflationary pressures over the next two years will be limited because of sluggish economic growth,” the bank said in its report, adding “firms believe that resource-related activity may be bottoming out following two years of hardships.”

Inflation is being held down by “intense competition” and the fading impact on input and output prices from a lower Canadian dollar, the report said. More companies are reaching their capacity limits as demand picks up again after a period of cutbacks.

Consumer price gains may linger below the Ottawa-based bank’s 2 percent target, with a record 76 percent of respondents saying inflation will average between 1 percent and 2 percent over the next two years.

Governor Stephen Poloz last month turned away from his bullish view on non-energy exports to focus instead on “downside” inflation risks. The survey published Friday is one of the last major economic updates before the Oct. 19 decision on the bank’s 0.5 percent policy interest rate.

More Canadian companies are optimistic about sales growth over the next year, with the balance of opinion climbing to plus 12 from plus 5. The balance reflects the 42 percent who saw faster sales growth, minus the 30 percent calling for slower gains.

The balance between companies expecting to increase investment in machinery and equipment in the next 12 months versus those predicting a decline rose to a two-year high of plus 18 from plus 9 in the last two reports.

The balance of opinion on employment over the next year rose to 31 from 21.

The business survey polled about 100 executives from Aug. 18 to Sept. 13.

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