UPDATE 1-Canada businesses see weaker currency lifting costs -poll

Mon Apr 7, 2014 12:59pm EDT
 
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(Adds details, analyst's comments)

By Louise Egan

OTTAWA, April 7 (Reuters) - Canadian businesses widely expect their input costs to rise as a result of the weaker Canadian dollar, but they're not always able to pass on those higher costs to consumers because of intense competition, a central bank survey showed on Monday.

The currency has weakened significantly since the Bank of Canada stopped hinting at eventual interest rate hikes last autumn because of its worries over slow inflation.

But the results of the central bank's first-quarter survey of business managers suggest inflation may still take some time to pick up speed. The inflation rate has stayed below the central bank's 2 percent target for 22 months, and is currently the bank's biggest concern.

Other results of the survey show companies still expect some improvement in sales, that they plan to invest more in machinery and equipment, and that hiring intentions were the strongest in almost two years.

The survey of senior management at about 100 companies from Feb 18 to March 13 painted a relatively upbeat view of economic growth over the coming 12 months after a weather-induced slowdown at the start of this year.

But the depreciation in the Canadian dollar against the U.S. dollar since October is a "double-edged sword," said David Tulk, chief macro strategist at TD Securities.

"While the support to the export sector is indeed positive and should be reinforced further by a stronger outlook for the U.S. economy, the potential impact on inflation is less encouraging," Tulk said in a note to clients.   Continued...