A net 26% of firms expect input prices to fall (versus 1% last quarter), while 13% anticipate cutting output prices over the next year (versus a net 5% expecting to increase last time). It was noted that, most of the impact from the Canadian dollar's depreciation had already been passed through, suggesting easing price pressures.
"It is believed that, loonie weakened over the past 6 weeks and could soften further. Inflation expectations remain firmly anchored around the 2% target, with just 3% of firms expecting sub-1% inflation, while that expecting 1%-to-2% rose by 8 ppts to a vast majority of 68%. Expect headline inflation to drift higher through the second half of the year, as the steep energy price declines in 2014 fall out of the calculation", notes BMO Economics.
Meanwhile, businesses reported that credit conditions loosened again somewhat in Q2. The Senior Loan Officer Survey actually reported slightly tighter credit conditions, entirely on the non-pricing side and focused on the oil & gas sector. The fact that businesses did not perceive this moderate tightening suggests that it's just something to keep an eye on for now.
In a separate release earlier this morning, StatCan's revamped capital and retail expenditure survey showed preliminary 2015 capital spending intentions fell 4.9%, with the private sector down 7%. Mining, oil & gas was the weak spot at -18.7%, while transportation and warehousing was the best performer up 13.4%. Regionally, Alberta was hit hard, as expected, slumping 11%, and Ontario (-1.5%) and BC (-6.3%, weaker mining likely weighed here) were weaker too. The latter two are expected to be the GDP growth leaders this year, so not good news there, says BMO Economics.
Total machinery and equipment spending intentions are dropped 5.4%, while non-res construction is down 4.7%. Overall, this is a weak report, but that's largely what was expected. The drop in oil & gas isn't quite as steep as expected, but M&E was weaker than anticipated, which doesn't help the BoC's thesis that investment outside of energy will help boost growth in H2. The latter is somewhat at odds with today's survey, but the BOS is more timely and likely takes on greater importance for the BoC, estimates BMO Economics.
Bottom Line with rate cut speculation heating up ahead of next week's policy announcement, the modest improvement and the upbeat tone for Central Canada and manufacturing slightly lower the odds of a move. Recall that Governor Poloz pays particular attention to this type of survey and the positives coming from non-energy sectors could stay his hand for now, says BMO Economics.
