By Ketki Saxena
Investing.com -- The Bank of Canada released results for two surveys today: the Q3 Business Outlook Survey (BOS) and the Survey of Consumer Expectations (SCE).
In terms of the Business Outlook Survey, inflation pressures moderated but remained high, growth was projected to slow, while businesses saw a coin toss on the probability of a recession.
Benjamin Reitzes, Managing Director, Canadian Rates & Macro Strategist at BMO (TSX:BMO) takese a largely pessimistic view of today’s data, noting that the reading “Weakened across the board, with most sentiment metrics softening”.
He writes that “Inflation expectations dipped somewhat but remained very elevated, as firms expect growth in input and output prices to slow over the next year, with labour costs a key source of upward pressure.”
77% of firms expect inflation to be above 3% over the next year. Two- and five-year inflation expectations also fell but all remain above 2%, with the near-term notably higher. Wage expectations are still expected to climb about 5% over the coming year, although notching a decline from the previous reading.
RBC’s Claire Fan meanwhile believes that today’s data paints “A mixed picture between growth outlook, key production constraints and future expectations held by Canadian businesses.”
She notes that “Most businesses that hold higher inflation expectations in the near-term also believe that it will slow back down to the BoC's target range within 3 years.”
However, Fan acknowledges that “Lower business inflation expectations however came at a price of slower expected growth”.
Sales growth expectations improved but remained negative, while broader sales metrics deteriorated sharply. Investment intentions slipped but remained still a historically solid level although down from their peak in q4 2021. Hiring intentions fell but remained at a solid level. Capacity pressures were little changed with 76% of firms citing difficulty in meeting an unexpected increase in demand.
More than half of firms see a 50%-or-greater chance of a recession, with most believing that higher rates and inflation will trigger a downturn.
In terms of what’s next, BMO’s Reitzes writes that “The next BoC policy announcement on October 26 hinges on Wednesday's CPI report...a strong reading will lead to a 75 bp hike, while consensus or lower would point to a 50 bp hike.”
RBC’s Fan, meanwhile leans towards a 50 bps hike later this month, “with risks skewed to the upside pending key September inflation data still to come later this week”.
“We don't expect the Bank of Canada to ease off the monetary policy brakes until policymakers are confident that inflation will slow substantially and sustainably.”