The fallout from the Iran war continues to spread across the Canadian economy, with car sales declining in all 10 provinces last month due to trade pressures and higher gasoline prices that discouraged major purchases.
Sales Decline Across Provinces
March was a challenging month for the Canadian new light vehicle sales market, according to DesRosiers Automotive Consultants Inc. The firm reported that sales contracted by double digits in seven provinces. Alberta saw an 11.1% drop from a year ago, while Newfoundland and Labrador experienced a nearly 20% decline. Overall, Canadian sales fell 8.2% in March compared to March 2025.
In the first quarter, Newfoundland, Prince Edward Island, and Saskatchewan were the weakest performers, with declines of 16.4%, 13.4%, and 11%, respectively, from the previous year.
Impact of Trade and Gas Prices
Andrew King, managing partner at DesRosiers, noted that the breadth of weakness in March and the disappointing seasonally adjusted annual rate of 1.85 million units are concerning. Both trade pressures and high gas prices weighed on the market.
The United States-Israel war on Iran began on February 28, and Iran subsequently closed the Strait of Hormuz, a critical passage for oil and natural gas exports from Saudi Arabia and other countries to Europe and Asia. This caused oil prices to surge globally and led to higher gasoline prices.
Gasoline Price Trends
The average price at the pump in Canada is $1.70 per litre, including taxes, up from $1.28 at the start of 2026 but down from highs of around $1.90 in early April, according to Kalibrate Technologies Ltd. On Monday, a temporary pause of the federal excise tax on gas took effect, reducing costs by roughly 10 cents per litre.
Broader Economic Effects
Other countries are also feeling the impact of higher energy prices. Germany has halved its growth forecast for this year, and the International Monetary Fund last week cut its global growth forecasts, warning that the Iran war could push the world economy into recession if not resolved quickly.
On Monday, the Bank of Canada's first-quarter business and consumer outlook surveys indicated that the conflict has somewhat derailed improving expectations for the economy and inflation. The Business Outlook Survey had shown improving investment and employment intentions before the war, but after resurveying businesses most exposed to the conflict, one-year inflation expectations rose to 3.8% from 3%. Consumers surveyed for the Canadian Survey of Consumer Expectations also expect the war to harm the economy and increase inflation.
The Bank of Canada closely monitors inflation expectations, as rising expectations can lead to higher prices and force the central bank to hike interest rates.
