Canada firms see shortages, inflation on track

OTTAWA, Oct 5 (Reuters) - Canadian companies reported more labor shortages and continued difficulty meeting increased demand in the third quarter but they still expect inflation to remain on target, a Bank of Canada poll showed on Friday.

The results of the central bank's third-quarter survey of businesses confirms that companies are bumping up against capacity constraints, suggesting that the economy cannot grow any faster without triggering inflation. Companies remain generally upbeat, despite heightened concerns about the U.S. economic slowdown and credit market troubles.

Eighty-four percent of companies expect inflation to remain within the Bank of Canada's target range of 1 to 3 percent over the next two years, unchanged from the second quarter poll. Only 12 percent see price growth speeding past the 3-percent mark, down from 14 percent in the previous quarter.

Forty-one percent of companies reported labor shortages, up from 33 percent previously, and 54 percent reported some degree of difficulty meeting an increase in demand, down a notch from the seven-year high of 55 percent reported in the last poll.

Fewer companies saw their sales growing over the next 12 months, at 35 percent compared with 40 percent in the second quarter but still greater than the 32 percent who expect sales to drop.

Capacity pressures remain strongest in Western Canada, where growth has outpaced the rest of the country, but pressures in the rest of the country have also risen in the past two surveys, the bank said in a release.