Canadian Dollar: Rising prices coincide with weaker business sentiment - RBC

Half of Canadian firms plan to pass cost increases on to customers as inflation expectations rise, according to Claire Fan at Royal Bank of Canada (RBC). Business sentiment improved until 21 August, before weakening markedly following the breakdown of Canada-US trade talks, while expectations for exports and investment deteriorated. Among consumers, near-term inflation expectations remain elevated. Longer-term expectations have also risen significantly, primarily because of the ongoing Middle East conflict.

Inflation expectations rise as trade tensions mount

"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."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Find out more.)