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Bank of Canada Quarterly Survey


As the title implies every quarter the BoC does a business survey, which ask four basic questions, (1) Are sales prospects growing, (2) Will you hire more people, (3) are you capacity constrained and (4) What is your inflation perception.

As a whole the answers were unsurprising; on the growth front, outlooks are tempering – but are now near the historical (last decade) average.  The same goes for employment growth and capacity utilization.  However, it must be noted that capital expenditure on plant and equipment is still above the trend line (but also returning to the historical trend line).



The BoC is well aware that there is a substantial level of commodity inflation baked in the cake for the summer.  Producer price have been nearly double the level of CPI (Core or otherwise) for nearly a year now.  Canada’s strong economy gives manufacturers some pricing power (inflation in the service sectors has been stronger for months now).  Overall, this report is indicative that the 0.5% growth in January will be the high for the year (the BoC had budgeted GDP growth of 2.5%, and the January GDP growth number would give rise to an annualized 5.6% GDP growth). 



So while inflation is now well contained, and the supply shock of higher commodity prices will be expressed during the summer, the BoC’s reality is that assuming that the CAD takes a break from rising (a big if…) then it would have the opportunity to raise interest rates.  Moreover, the ending of QE2 in the U.S. will also put upward pressures on U.S. interest rates.



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