Canadian companies are finding it increasingly hard to meet demand and they expect inflation to stay high, according to a Bank of Canada survey released today.

The bank’s second-quarter business survey found that the percentage of companies expecting inflation to rise above the bank’s 2% target over the next two years has risen to 70% from 60% in its first-quarter poll.

The portion expecting inflation to jump beyond 3% rose to 14% from 11% previously.

Fifty-five per cent of companies reported either “some difficulty” or “significant difficulty” meeting an unexpected increase in demand, up from 50% in the previous quarter.

“Limits on physical capacity have risen, relative to those reported in previous surveys, whereas labor constraints have eased slightly,” the bank said in a summary of the poll results.

But the bank noted that capacity pressures are “significantly greater” in Western Canada where development of vast oil and natural gas reserves has led to a booming economy.

Concerns over labor shortages appear to be subsiding, with 33% reporting a lack of workers, compared with 41% in the previous quarter. The outlook for sales growth was roughly in line with that of the first quarter. But fewer companies said they planned to increase their investments or boost their work forces.