Ever since the Bank of Canada threw financial markets a knuckleball last month with a surprise decision to hold its key lending rate steady, central-bank watchers have been working overtime trying to decipher the thinking of rookie bank boss Mark Carney and his team. With the suddenly less-than-predictable bank due to spring another rate-setting decision on the markets next weekeds: July 15, investors will get some valuable intelligence into what the bankers are looking at, when the Bank of Canada unveils its Business Outlook Survey Monday morning.

The Business Outlook Survey provides the central bank with a quarterly snapshot of business conditions and expectations across the country, from the perspective of the corporate decision-makers in the trenches. The bank interviews senior management at roughly 100 major firms, representing a cross-section of Canada's gross domestic product, and serves as a gauge for sales expansion, capacity pressures, employment growth and capital investment – all key elements of the pace of the economy. The survey is considered a key input in the Bank of Canada's policy-making process.

What is the market looking for?

The first-quarter Business Outlook Survey, released in April, displayed some early signs of what has become a critical dilemma for the markets and central bankers: Slowing growth combined with rising inflation. Companies' expectations for future sales growth slipped into negative territory for the first time since 2001, and labour and capacity pressures eased. But inflation expectations jumped to their highest levels since the aftermath of Hurricane Katrina in autumn 2005.

Charmaine Buskas, senior economic strategist at TD Securities Inc., said the pessimistic tone to the April survey came “as little surprise,” given that it was conducted shortly after the worrisome bailout of Bear Stearns in mid-March. But since then, Canada's economic fundamentals have weakened, while inflation worries have grown.

“The business conditions survey should put some colour on the data that suggest the Canadian economy has, indeed, throttled back, but it should not be so grim as to suggest anything other than an ordinary business-cycle correction,” Ms. Buskas said.

David Wolf, market strategist at Merrill Lynch Canada, said growth and capacity issues should take a back seat to inflation questions in this survey.

“In this current global inflation-phobic environment, developed-market central banks seem most concerned about current rising inflation rates causing expectations to rise, allowing greater pass-through and threatening an acceleration in wages,” he said.

He suggested soaring energy prices since April have created a risk that inflation expectations could surge toward historically peak levels, which would add substance to the markets' inflation fears.

“While it will remain unclear to what extent these higher expectations are simply mirrors to the recent past, they may well sit uncomfortably with both the [Bank of Canada] and interest-rate markets,” Mr. Wolf said.