MNI: Firms See Tariffs Hitting CPI More Than Growth-BOC Poll

Canadian executives expect greater pressure from higher prices than from weaker demand in a U.S. trade war according to a central bank survey published the week before the next policy decision, in line with Governor Tiff Macklem's view he must be cautious about adding to his seven consecutive interest-rate cuts to ensure inflation and price expectations remain in check.

"Near-term inflation expectations are higher than last quarter, with firms believing the inflationary impacts from tariffs will outweigh reduced pressures from weak demand," according to Monday's Business Outlook Survey. While the survey's primary interviews were done in February some follow-up online results were gathered in March and the results also include "outreach" by Governing Council members. 

The share of companies seeing inflation faster than 3% over the next two years, taking it outside the Bank's 1% to 3% target band, rose for a second quarter. It reached 23% in the latest survey, up from priors of 20% and 15%. Another 44% of respondents see inflation ranging between 2% and 3%. The Bank's quarterly survey of consumers also showed some inflation heat. Household expectations for inflation two years ahead climbed to 3.9% from 3%. 

Macklem's most recent speech said officials must meet their mandate of keeping inflation stable through a period where tariffs could turn into broader inflation, even amid contradictory risks of drops in exports and investment and higher prices from tariffs. "The more inflationary the impact, the less scope monetary policy has to support the economy," he said in Calgary. While the U.S. last week excluded Canada from a new round of steep global tariffs Donald Trump kept in place earlier levies of up to 25%. 

The business survey showed firms pulled back on investment and hiring as they saw greater risk of a recession amid threats of a U.S. trade war. The share of firms planning to add workers over the next year fell to record low, though plans for layoffs were little changed. Some 32% of firms see a recession in the coming year, up from the prior 15%. Among households that figure climbed to 67% from 47%.