© . FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie
By Julie Gordon OTTAWA () – A record number of Canadian companies face capacity pressures amid intense labor shortages and ongoing supply chain problems, with many expecting significant increases in wages and input prices, according to a regular survey by the Bank of Canada on Monday. The central bank’s Business Outlook Survey Indicator fell in the first quarter from a record high in the previous quarter, but remained well above pre-pandemic levels. The research was conducted before the Russian invasion of Ukraine. “The number of companies reporting capacity pressures related to labor or supply chain challenges is at an all-time high,” the study said. “Due to ongoing capacity pressures and strong demand, companies expect significant growth in wages, input prices and output prices. Plans to increase capital expenditures and add staff remain rife.” Inflation expectations for the next two years continued to rise, with 70% of companies now expecting inflation to be above the Bank of Canada’s 1-3% control margin over the next two years. Inflation in Canada reached 5.7% in February, its 30-year high and the 11th straight month above 3%. Economists said higher inflation expectations bolster the argument for the Bank of Canada to raise interest rates by 50 basis points next week. “If we still had to confirm the argument for a half-point rate hike in April, the Bank of Canada’s Business Outlook survey has given it that, at least in terms of inflation expectations,” said Avery Shenfeld, chief economist at CIBC Capital Markets. in a Note. A separate survey of consumer expectations found that the general public also expects inflation to be above target over the next two years, before easing. It noted that long-term inflation expectations remain well anchored. Money markets estimate a 70% chance that the Bank of Canada will go through with the bigger hike on April 13. A deputy last month said the central bank was ready to act “forcefully” to curb inflation. The Bank of Canada also conducted a separate online survey on the impact of Russia’s invasion of Ukraine, which Moscow calls a “special operation,” on Canadian businesses. About half said they expected to be affected, mainly as a result of higher raw material prices and increasing supply chain problems. Several companies, especially those tied to energy and other commodities, expect higher sales. The Canadian dollar rose 0.3% to the dollar to 1.2480, or 80.13 cents.