The Bank of Canada's quarterly surveys released Monday reveal that both consumers and business leaders anticipate inflation will rise above three percent over the next 12 months, citing economic uncertainty stemming from the war in the Middle East and United States tariffs.
Key findings from the surveys
In its Business Outlook Survey (BOS) and Canadian Survey of Consumer Expectations (CSCE), the central bank attributed the rise in inflation expectations primarily to elevated oil and energy prices. Nearly three-quarters of firms reported rising costs due to higher fuel costs linked to the Iran conflict, while about one-fifth of firms noted cost pressures from US tariffs and trade policies—though this share is smaller than in the previous quarter.
Business sentiment and inflation trends
Business sentiment deteriorated this quarter after three consecutive quarters of improvement. However, near-term inflation expectations among business leaders have been trending downward since peaking in April, with the lowest expectations recorded after the United States and Iran signed an interim agreement in mid-June to end the war.
Consumer spending and economic uncertainty
Data from the CSCE indicates that consumer spending intentions edged down in the second quarter of 2026. This decline aligns with concerns that higher energy prices will push inflation higher and that economic uncertainty will remain elevated due to trade tensions and persistent cost-of-living worries. The BOS noted that outlooks weakened for businesses tied to consumer discretionary spending, as higher gasoline prices constrained spending on travel, dining, and major purchases.
“Households expecting the war to raise inflation significantly are also more likely to report other spending changes, such as substituting toward cheaper essentials, reducing discretionary purchases and driving less,” the CSCE stated. “Beyond the war in the Middle East, many consumers also believe trade tensions are raising prices and contributing to economic uncertainty.”
Support from government benefits
The CSCE noted that a one-time top-up to the Canada Groceries and Essentials Benefit may support spending among some households. Approximately 44 percent of respondents expected to receive the payment, with 43 percent of those respondents saying they would spend less than one-quarter of the payment, while 49 percent said they would spend one-quarter or more. “Households expecting to spend more than 75 percent of the payment report spending intentions that are less negative than households expecting to spend less than 25 percent of the payment. These results suggest that the top-up payments are expected to support spending among many recipient households,” the survey read.
