Canadian Dollar: Rising prices accompany weaker business sentiment - RBC

Half of Canadian firms plan to pass cost increases on to customers. Claire Fan at Royal Bank of Canada (RBC) reports that business sentiment strengthened until 21 August, then deteriorated markedly following the breakdown of Canada-U.S. trade talks. Expectations for exports and investment weakened as inflation expectations increased. Consumers’ near-term inflation expectations remain high, while longer-term expectations have climbed significantly, mainly because of the continuing Middle East conflict.

Half of firms plan cost pass-through as trade tensions raise inflation expectations

"Conditions among firms generally improved through early August, but evidence collected after the breakdown of Canada-U.S. trade talks on August 21 pointed to renewed weakness in sentiment, exports and investment alongside rising inflation expectations."

"Firms' one- to two-year-ahead inflation expectations declined between May and August as oil prices and trade uncertainty moderated, but resurged in September to near spring highs as those trends reversed."

"Firms' near-term inflation expectations remained below elevated April levels through July and August but rose sharply in September, to 3.7% one-year-ahead and 3.1% two-years-ahead."

"Concerningly, half of firms surveyed—more than last quarter—plan to pass on cost increases to customers."

"Consumer near-term inflation expectations were little changed at elevated levels. New development in Q3 was that longer-term (five-year-ahead) expectations rose significantly to match elevated shorter-term expectations, driven primarily by the ongoing war in the Middle East."

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