Canadian businesses expect their sales over to increase at a rate slightly above that posted during the preceding 12 months, according to the Bank’s of Canada Winter 2006-07 Business Outlook Survey.

However, labour shortages appear to be easing slightly and, with falling oil prices, there is less concern about inflationary pressure, the survey showed.

The survey, which was released today, suggests that the economy is not in overdrive, but nor is a huge amount of slack opening up, despite economic activity dropping off sharply from a 3.8% pace in the first quarter of last year to a sluggish 1.7% pace in the third quarter.

Pressures on production capacity were slightly higher in the winter survey than in the fall, and again concentrated in Western Canada.

Nearly 50% of firms in the survey say they would have some or significant difficulty in meeting an unexpected surge in demand.

As for labour shortages, 35% of companies — mainly in Western Canada’s primary sector — say staffing issues are restricting their ability to meet demand. That’s down just slightly from the central bank’s autumn survey, but continues the gentle downward trend observed since autumn 2005.

On the inflation front, the survey showed, firms expect slower growth of input prices over the next 12 months, but they expect output prices to rise at about the same rate as over the past year.

Firms told the central bank that they generally expect sales volumes to pick up the pace a bit this year, especially firms in central and eastern Canada. Firms in the West expect a continuation of the same rapid pace that has supported that region’s boom for the past couple of years.

Hiring intentions are about the same in the winter survey as in the fall survey, but they are generally stronger than the historical average, and more robust in the services sector than in the goods-producing sector, the bank said.

The business outlook survey is conducted by the central bank, and polls senior managers in about 100 companies. The winter survey was conducted between Nov. 14 and Dec. 8 last year.

The Bank of Canada’s next interest rate announcement is next Tuesday, Jan. 16. The central bank is widely expected to maintain rates at their current level of 4.25%.