The Bank of Canada's third-quarter 2024 Business Outlook Survey indicates continued muted inflationary pressures among businesses. The survey, conducted from August 8 to 30, involved interviews with senior management of about 100 firms across Canada. It highlights weak demand and excess capacity as primary factors affecting business conditions.
Firms report that past sales growth remains weak due to inflation and interest rate hikes impacting consumer budgets. However, there is a slight improvement in sales expectations following recent interest rate cuts. Businesses note an easing in capacity pressures, with only a few reporting labor shortages.
"Expectations for growth in wages, input costs and selling prices have continued to normalize as demand has slowed and inflation has come down," the report states. Despite these improvements, business sentiment remains subdued since February 2024 due to concerns over high interest rates, soft demand, and economic uncertainties.
While sales growth expectations are improving slightly, they remain below average. High interest rates continue to affect sales, especially for firms linked to discretionary consumer spending. Firms indicate that customers are opting for cheaper alternatives, necessitating discounts.
With eased capacity pressures and modest investment plans focused on equipment replacement or repair rather than expansion or efficiency improvements, businesses show caution in their hiring intentions as well. "Hiring intentions are also mostly unchanged and remain slightly weaker than average," according to the survey.
Most firms anticipate wage growth will slow over the next year while expecting reduced pressure from cost-of-living increases in the future. They foresee slower growth in input prices due to weakened commodity prices and expect selling price growth to ease further amid competitive pressures.
Inflation expectations among businesses have moderated across all time horizons with predictions converging around 2.5%. Nearly two-thirds expect inflation between 2% and 3% over the next two years.
The Business Outlook Survey reflects opinions expressed by respondents without necessarily representing the views of the Bank of Canada. Further details can be found on the Bank's website.