Bank of Canada: companies’ inflation expectations hit record

A quarterly survey by the Bank of Canada showed that an increasing number of companies in the country expect inflation to remain well above 2% for 3 years or more. At the same time, a third of firms plan to significantly increase the prices of their products for customers.

About 47% of companies expect that they will have to pay significantly more for resources, including raw materials necessary for the production of goods and services. The survey also showed that companies expect employee salaries to grow by an average of 5.8% in the coming year, compared with 5.2% in the previous quarter. 

The survey results are likely to increase the likelihood that the Bank of Canada will decide to raise the key rate by 0.74 points at the next meeting. As you know, representatives of the Canadian regulator rely heavily on the results of such surveys when making decisions on monetary policy. 

Inflation in Canada rose in annual terms to a 39-year high of 7.7% in May. Economists expect consumer price growth to exceed 8% in the coming months. At the same time, the central bank's inflation target is at the level of 2%. 

According to the study, companies associate the growth of inflation expectations with problems in supply chains, rising commodity prices and active domestic demand.