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Results of the first-quarter 2022 survey | Vol. 19.1 | April 4, 2022

In the first-quarter 2022 Business Outlook Survey, reports of labour-related capacity constraints and supply chain challenges remain widespread. Given these pressures and robust demand, businesses anticipate stronger price growth—and they expect the Russian invasion of Ukraine to add more cost pressures. As public health restrictions ease, firms that were hit hard during the pandemic anticipate their sales will pick up.


  • Interviews for the Business Outlook Survey (BOS) were conducted before the Russian invasion of Ukraine. Results from a special business survey in March show that roughly half of respondents expect to be affected by the conflict—most commonly through higher cost pressures due to increased prices for energy and other commodities.
  • Firms continue to expect strong sales growth but at a more moderate pace than over the past year. Businesses tied to hard-to-distance services anticipate significant increases in their sales as restrictions related to the COVID‑19 pandemic ease.
  • The number of firms reporting capacity pressures related to labour or supply chain challenges is at a record high.
  • Because of persistent capacity pressures and strong demand, firms expect significant growth in wages, input prices and output prices. Plans to increase investment spending and add staff continue to be widespread.
  • Expectations for average inflation over the next two years remain elevated. Most firms anticipate inflation will be close to the Bank of Canada’s 2% inflation target in three years. They attribute the slowdown in inflation to expected interest rate actions by the Bank and improvements in supply chains.

Firms expect the conflict in Ukraine to add upward cost pressure

In early March, the Bank conducted an online survey of Canadian firms to supplement the findings of the BOS and better understand the impact of the Russian invasion of Ukraine.1 Roughly half of the businesses surveyed anticipate that they will be affected by the conflict.

The most common expected impact is upward cost pressure (Chart 1), tied mainly to:

  • increased prices for energy and other commodities
  • further supply chain disruptions

Among the firms expecting the conflict to increase their input costs due to supply chain disruptions, many depend on goods coming from Europe or Asia. They anticipate rising transportation costs and longer delivery times, beyond those related to the COVID-19 pandemic. Other businesses expect delays and reduced availability of commodities. Many firms plan to pass conflict-related cost increases on to their customers.

While the invasion of Ukraine is clearly expected to increase firms’ input costs, the anticipated impact on their sales and investment plans is more ambiguous. Several businesses, predominantly those tied to energy and other commodities, expect higher sales. Other firms anticipate their sales will be lower because of supply chain disruptions and increased uncertainty. Some businesses noted that lingering uncertainty related to the pandemic, particularly around supply chain disruptions and associated costs, has been intensified by the conflict.

Chart 1: Many businesses anticipate the Russian invasion of Ukraine will increase their input costs

Chart 1: Many businesses anticipate the Russian invasion of Ukraine will increase their input costs

What areas of your business do you expect to be impacted by the conflict in Ukraine? Number of firms (among the 77 of 152 firms that expect to be affected)

Note: “Net” is the number of firms expecting an increase minus the number expecting a decrease. Results are from the Bank of Canada’s Business Leaders’ Pulse survey. Responses were collected from 152 firms between March 4 and March 10, 2022.
Source: Bank of Canada Last observation: March 10, 2022

 Will decreaseWill increaseNet
Input costs-26159
Output prices-64640
Capital expenditures-18224
Ability to meet demand-16171

The BOS indicator reflects tightness in the economy, growing demand and rising price pressures

The BOS indicator remains elevated, reflecting tightness in capacity as well as expectations for stronger business activity and for faster price growth (Chart 2). Despite some anticipated moderation in sales growth, firms’ sales outlooks remain robust. However, most businesses continue to report that labour-related constraints and supply chain disruptions due to the pandemic are affecting their ability to meet demand. The combination of strong demand and widespread capacity pressures is pushing up firms’ expectations for wage and price growth.

Chart 2: The BOS indicator continues to be elevated as capacity pressures remain widespread

* The BOS indicator is a summary measure of the main survey questions that gauges overall business sentiment.Last observation:

Businesses continue to expect strong sales growth

After strong sales growth over the past year, most businesses expect increases, often significant, in their sales over the next 12 months. Concrete signals of greater domestic and foreign demand are supporting firms’ healthy sales expectations. Future sales indicators (e.g., sales inquiries, order books) have improved broadly compared with a year ago (Chart 3, red line).

While businesses continue to expect robust sales growth, they anticipate it will be at a more moderate pace than over the past year (Chart 3, blue bars). Firms that fared well during the pandemic and those that rebounded strongly following the impacts of the first wave of the virus said they expect growth to ease to a more sustainable pace. Businesses tied to housing expect upcoming interest rate increases to slow growth in demand, but they anticipate activity will remain at elevated levels. Conversely, as restrictions ease and demand that was negatively affected by the pandemic returns, firms linked to hard-to-distance services expect their sales to grow at a faster rate. Roughly one-quarter of businesses continue to report that their sales have not fully recovered from pandemic losses.

Chart 3: Reports of improved future sales indicators remain widespread

Chart 3: Reports of improved future sales indicators remain widespread

Future sales (balance of opinion*): Over the next 12 months, is your firm’s sales volume expected to increase at a greater, lesser or the same rate as over the past 12 months? Indicators of future sales (balance of opinion†): Compared with 12 months ago, have your recent indicators (order books, advance bookings, sales inquiries, etc.) improved, deteriorated or remained the same?

* Percentage of firms expecting faster growth minus the percentage expecting slower growth
† Percentage of firms reporting that indicators have improved minus the percentage reporting that indicators have deteriorated Last observation:

Firms’ capacity to meet demand is still constrained

Four out of five businesses—a record-high proportion—reported they would have some or significant difficulty meeting an unexpected increase in demand (Chart 4). The main bottlenecks continue to be related to labour and supply chain frictions. About one-third of firms indicated that capacity constraints are holding back their sales expectations. For businesses that fared well during the pandemic, pressures on their production capacity are partly due to strong demand.

Chart 4: Capacity pressures remain at record-high levels

  Last observation:

Businesses reported that supply chain issues have worsened compared with three months ago, mainly because specific inputs or large quantities have become more difficult to obtain. Most of the firms citing supply chain bottlenecks expect related issues to persist until at least 2023.

To deal with supply chain challenges, firms are adjusting their operations in the areas of:

  • goods and services inputs—by using new suppliers, transportation providers or inputs, or carrying higher inventory
  • sales—by delaying orders, reducing the number of products available or turning down work
  • prices—by raising their output prices

The indicator of labour shortage intensity remains elevated, which suggests that most firms consider labour markets to be tighter than a year ago (Chart 5, red line). The share of businesses facing labour shortages that restrict their ability to meet demand remains high—further evidence that labour markets are tight (Chart 5, blue bars). Labour shortages are attributed mainly to:

  • structural changes, such as technological advances requiring additional skills, as well as population aging and shifting occupational preferences (e.g., away from jobs in construction trades, transportation and agriculture)
  • current strong demand for labour
  • pandemic-related factors, including worker absences (i.e., due to illness, child care responsibilities or fear of contracting COVID‑19), government income support and fewer new immigrants available to work because of past border restrictions

Several firms noted that labour market tightness may limit the number of workers they are able to hire this year. Most businesses expect labour shortages—mainly those linked to structural changes—to persist until at least 2023.

Chart 5: Reports of labour shortages are widespread

Chart 5: Reports of labour shortages are widespread

Labour shortages: Does your firm face any shortages of labour that restrict your ability to meet demand? Intensity of labour shortages (balance of opinion*): Compared with 12 months ago, are labour shortages generally more intense, less intense or about the same intensity?

* Percentage of firms reporting more intense labour shortages minus the percentage reporting less intense shortagesLast observation:

Intentions to invest more and add staff are supported by demand

Because of ongoing strength in demand, plans to spend more on machinery and equipment and to hire over the next 12 months continue to be widespread (Chart 6). Businesses also cited other reasons for wanting to invest more:

  • to ease labour-related constraints with productivity improvements, frequently through digital technologies and automation
  • to alleviate physical capacity bottlenecks or to address transportation and logistics challenges
  • to proceed with long-term investment plans as uncertainty related to the pandemic diminishes

Chart 6: The majority of firms intend to increase investment spending and add staff

Chart 6: The majority of firms intend to increase investment spending and add staff

Investment intentions (balance of opinion*): Over the next 12 months, is your firm’s investment spending on machinery and equipment expected to be higher, lower or the same as over the past 12 months? Employment intentions (balance of opinion†): Over the next 12 months, will the number of employees (full-time equivalent) at your organization (in Canada) be higher, lower or the same?

* Percentage of firms expecting higher investment spending minus the percentage expecting lower investment spending
† Percentage of firms expecting higher employment levels minus the percentage expecting lower employment levelsLast observation:

Firms continue to expect significant price increases

Firms’ expectations for average wage increases remain well above usual levels, and reports of higher expected wage growth are pervasive (Chart 7).2 As in the previous survey, businesses said the upward pressure on wage growth continues to be related to:

  • tight labour markets that are making it difficult to attract and retain employees
  • the higher cost of living
  • an increasing need to keep pace with rapidly changing labour market expectations

Chart 7: Most businesses see wages rising at a faster rate

Chart 7: Most businesses see wages rising at a faster rate

Wages (balance of opinion*): Over the next 12 months, are increases in labour costs (wages per hour) expected to be higher, lower or about the same rate as over the past 12 months? Average expected wage increase (year-over-year percentage change): What do you expect your average wage increase to be next year?

* Percentage of firms expecting higher labour cost increases minus the percentage expecting lower labour cost increasesLast observation:

Businesses also anticipate that their input and output prices will grow at faster rates (Chart 8). Indeed, a record number of firms are expecting significant increases in their input and output prices. Many businesses expect faster price growth for non-commodity inputs (e.g., electronic components, packaging, transportation), which they often linked to ongoing supply chain challenges. Before the invasion of Ukraine, firms expected the prices of various commodities and related inputs (e.g., oil-based products, food-related goods) to continue to grow at a pace similar to that of the past 12 months.

Chart 8: Firms expect faster growth in input and output prices over the next year

* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increasesLast observation:

The number of firms intending to pass price increases related to supply chain frictions (non-labour costs) and rising wages on to their customers remains elevated (Chart 9). Several businesses noted that strong demand allows them to increase their selling prices more easily in response to growing cost pressures. In addition, the number of firms that expect competition to hold down their output price increases is at a record low.

Chart 9: Cost pressures continue to affect firms’ expectations of output prices

* Number of firms citing upward pressure on output prices minus the number citing downward pressure
† Average net number of firms for each category, 2014Q2 to 2022Q1Last observation:

Labour cost pass-through71319356.2
Non-labour cost pass-through262131339.1
Demand conditions20-312121
Commodity price pass-through157386.1
Competitive environment-18-4-2-1-10.2

However, many firms signalled that they will not fully pass on increases in input costs and wages to customers. For example, some are dealing with such cost pressures through productivity improvements and reduced margins. Most firms that increased their prices in response to cost pressures related to supply chain disruptions expect their selling prices to decline or to grow at a slower rate once the bottlenecks and associated costs ease.

Firms expect inflation to be high but later decline

Firms’ inflation expectations remain elevated (Chart 10). More than two-thirds of businesses anticipate inflation will be above 3%, on average, over the next two years, while two-fifths expect it to be above 4%. Respondents often linked their expectations of inflationary pressures to:

  • ongoing supply chain issues
  • commodity prices (including prices related to energy, building materials and food)
  • labour costs

Chart 10: The majority of firms expect average inflation to be above 3% over the next two years

Last observation:

To better understand firms’ inflation expectations, Bank staff asked participants how long they expect inflation to remain substantially above the Bank’s 2% target. Less than one-fifth of businesses expect inflation to stay well above 2% three years from now (Chart 11). That is, most firms anticipate inflation will be high in the short to medium term but then decline. Businesses generally see inflation’s return to target as the result of expected interest rate actions by the Bank and improvements in supply chains as the impacts of the pandemic fade.

Chart 11: Most businesses anticipate inflation will be near 2% in three years

Less than 1 year129.4
1—2 years38.634.1
2—3 years31.335.3
3—4 years68.2
4—5 years3.63.5
More than 5 years4.84.7

  1. 1. The data were collected as part of an experimental monthly online survey, the Business Leaders’ Pulse. The sample consisted of 152 firms, and survey responses were collected from March 4 to March 10, 2022.[]
  2. 2. For more information on the new average wage increase series, see the Backgrounder on the Business Outlook Survey question on firms’ average expected wage increase.[]

The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected to reflect the composition of the gross domestic product of Canada’s business sector. This survey was conducted by phone and video conference from February 7 to February 25, 2022. The balance of opinion can vary between +100 and -100. Percentages may not add to 100 because of rounding. Additional information on the survey and its content is available on the Bank of Canada’s website. The survey results summarize opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.

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