Canadian Dollar: Business sentiment weakens as prices rise - RBC

Claire Fan at Royal Bank of Canada (RBC) reports that Canadian business sentiment improved until August 21 but weakened markedly after Canada-U.S. trade talks broke down. Export and investment expectations deteriorated while inflation expectations rose, with half of firms planning to pass cost increases on to customers. Consumer near-term inflation expectations remain elevated, while longer-term expectations have risen significantly, driven primarily by the ongoing Middle East conflict.

Trade tensions lift 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."

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