UPDATE 1-Bank of Canada Q3 business survey eases, but firms optimistic

(Adds details from survey)

OTTAWA, Oct 16 (Reuters) - Canadian companies are optimistic about future sales and there is a general view that capacity and labor market pressures have intensified over the past year, suggesting slack is being absorbed amid robust demand, the Bank of Canada said on Monday.

While Canadian business sentiment is positive, investment and employment indicators softened from recent highs, pointing to less widespread plans to increase investment and hiring, the central bank said in its quarterly Business Outlook Survey.

"Prospects for the coming 12 months remain robust; a large majority of firms foresee a rise in sales volumes, with some further pickup in sales growth, suggesting that growth is becoming entrenched," the bank said.

For the first time since the energy downturn, inflation expectations moved up but remain modest overall, the survey showed, as higher costs for labor and non-commodity inputs were offset by the recent strengthening of the Canadian dollar.

While firms reported that labor shortages are more intense than a year ago, pushing the labor shortage intensity to its highest point since the 2008-09 recession, difficulties in meeting demand and reports of binding labor shortages are not yet widespread, the bank said.

"Although the degree of slack differs across regions, there is a widespread view that capacity pressures have increased over the past 12 months, and, on balance, firms expect pressures to intensify over the next year," the bank said in the survey.

Somewhat more firms expect consumer price growth to be in the upper half of the bank's inflation control range, based on a strong economic growth and minimum wage increases, though that is a minority view. Most respondents still expect price growth to be below 2 percent, based on the recent trend in inflation, the bank said.

Foreign demand is providing a lift to export prospects, with firms reporting improved orders from abroad compared to 12 months ago. While expectations for U.S. growth have moderated, respondents expect demand for commodities and the "still-supportive" level of the Canadian dollar to underpin exports.

"Despite lingering uncertainty about U.S. policies, most firms reported no impact on the outlook for their business," the survey said. (Reporting by Andrea Hopkins and Leah Schnurr; Editing by Marguerita Choy)