Canadian Businesses Anticipate Persistent Inflation Above Three Percent
Trade tensions and geopolitical conflicts drive elevated price expectations for the next two years.
1Persistent Inflationary Outlook
Business leaders in Canada anticipate the inflation rate will remain above three percent for the next two years. This outlook stems from the breakdown in Canada-United States trade negotiations and ongoing conflicts in the Middle East. These factors continue to exert upward pressure on production costs and overall consumer prices nationwide.
2Pricing Strategy Adjustments
Roughly half of the firms surveyed plan to pass cost increases related to tariffs and the Iran war onto their customers. Businesses that previously implemented price hikes intend to continue this trend over the next twelve months. However, competitive market pressures remain a significant constraint on their ability to raise prices further.
3Impact of Global Conflicts
Canada's inflation rate rose to 3.1 percent in September, up from 3.0 percent in August. This increase is primarily attributed to higher energy prices resulting from the Iran and Russia-Ukraine wars. While firms expect non-labour production costs to moderate, they remain elevated, influencing the broader economic sentiment across the country.
4Technological Investment Trends
To mitigate trade tensions, many firms are modifying supply chains and diversifying export markets. Companies are increasing investments in digital technologies, including artificial intelligence and automation systems. These strategic moves aim to improve productivity and operational efficiency, allowing businesses to meet sales targets without needing to expand their current staffing levels.
5Cautious Capital Spending
Uncertainty surrounding United States trade policy continues to restrain capital spending plans among Canadian businesses. Although trade tensions currently weigh less on near-term sales, employment intentions remain soft and below historical averages. Most firms prefer maintaining current staffing levels, relying on efficiency gains from automation to handle any potential increases in demand.
6Consumer Inflation Expectations
The Canadian Survey of Consumer Expectations indicates that households anticipate inflation rising to 4.03 percent over the next year. Respondents consistently cite tariffs and trade tensions as the primary factors driving these costs. Long-term expectations have also climbed, aligning closely with current public perceptions of inflation, which sit at 3.9 percent.
7Spending Intentions Decline
Consumer spending intentions fell in the third quarter of 2026, remaining below the historical survey average. High prices for everyday goods and services serve as the primary barrier to household consumption. Households that expect the Middle East conflict to significantly raise inflation show notably weaker spending intentions compared to other consumer groups.
8Policy Deliberation Context
The Bank of Canada utilizes these Business Outlook and Consumer Expectations reports to inform interest rate deliberations. With an announcement scheduled for October 28, the central bank is evaluating how these persistent inflationary pressures and trade uncertainties affect the broader economy. These findings are critical for the upcoming quarterly Monetary Policy Report.