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For me, this is a more-important report than today’s jobs data.
The Bank of Canada’s Q3 2024 Business Outlook Survey shows that Canadian firms are still facing headwinds, with the BOS indicator remaining in negative territory. While current business conditions remain subdued, there’s a glimmer of hope as future sales expectations showed some improvement.
Labour market pressures continue to ease, with the share of firms reporting labour shortages falling well below historical averages. This cooling in the job market is reflected in weak hiring intentions for the coming year.
On the inflation front, businesses expect wage growth to moderate gradually. They also anticipate slower growth in both input costs and selling prices compared to recent quarters. Importantly, inflation expectations have settled within the BoC’s 2-3% target range across all time horizons, with most firms expecting inflation between 2% and 3% over the next two years.
Given that CPI is already at 2%, there is no reason for Bank of Canada rates to be so high above neutral. The question for this month’s meeting is 25 bps or 50 bps and I see an overwhelming case for 50 bps. That said, the BOC has been slow to move and the slight uptick in future sales expectations could give the central bank pause before making any dramatic moves.
This article was written by Adam Button at www.forexlive.com.
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