Businesses are dealing with two huge headaches right now:
- Risings costs of materials/labour
- Supply chain bottlenecks
Alone, those factors would be highly damaging to businesses but they're buffered by very strong order books so overall businesses are cheerful. The Bank of Canada's latest survey of businesses was released today and it showed some slowing in order files and intensification in capacity constraints but businesses overall remain optimistic.
"Expected future sales growth decelerated, but from very high levels, and over 80% of businesses reported they would have trouble filling an unexpected increase in orders. Hiring and investment plans remained strong - but acute labour shortages pushed up expected wage growth to 5.2% over the next year," RBC assistant chief economist Nathan Janzen wrote.
"The Bank of Canada will take some comfort from the fact that longer-run inflation expectations have yet to come unanchored with most businesses expecting a return to near a 2% rate after three years. But that was also contingent on expectations that the central bank will continue to increase rates. Clearly, the economy and inflation pressures are too firm to justify emergency-low levels of interest rates and we think the Bank of Canada is most likely to hike the overnight rate by another 50 bps later this month to follow up on the 25 bps increase in March."
