Canadian consumers and business leaders expect inflation to rise above three per cent over the next 12 months due to economic uncertainty surrounding the war in the Middle East and United States tariffs , according to Bank of Canada economic surveys released Monday. In its quarterly Business Outlook Survey (BOS) and Canadian Survey of Consumer Expectations (CSCE), the central bank said elevated oil and energy prices have driven an increase in business’ and consumers’ inflation expectations. Business sentiment deteriorated this quarter following three quarters of improvement as nearly three-quarters of firms reported rising costs due to higher fuel costs caused by the Iran war. About one-fifth of firms — which the central bank said is a smaller share compared with last quarter — also reported cost pressures from U.S. tariffs and trade policies. However, near-term inflation expectations have been trending down among business leaders since peaking in April, with the lowest expectations recorded after the United States and Iran signed an interim agreement mid-June to end the war. Despite that, data from the CSCE suggests that consumer spending intentions edged down in the second quarter of 2026. This decline coincided with concerns that higher energy prices will push inflation higher and economic uncertainty will remain elevated due to trade tensions, as well as persistent concerns around the higher cost of living. Outlooks have also weakened for businesses tied to consumer discretionary spending because higher gasoline prices constrained spending on travel, dining and major purchases, according to the BOS. “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 said. “Beyond the war in the Middle East, many consumers also believe trade tensions are raising prices and contributing to economic uncertainty.” The CSCE noted, however, that a one-time top-up to the Canada Groceries and Essentials Benefit may support spending among some households. Around 44 per cent of respondents expected to receive the payment, and 43 per cent of those respondents said they would spend less than one-quarter of the payment while 49 per cent said they would spend one-quarter or more of the payment. “Households expecting to spend more than 75 per cent of the payment report spending intentions that are less negative than households expecting to spend less than 25 per cent of the payment. These results suggest that the top-up payments are expected to support spending among many recipient households,” the survey read. The labour market also remains soft despite some signs of improvement. Data from the BOS also suggest that employment intentions among businesses weakened slightly in the second quarter of 2026 as softer outlooks weigh on hiring plans, especially for businesses outside of the Prairies. However, hiring intentions have increased among businesses in the Prairies due to higher commodity prices. While cost-of-living adjustments have put upward pressure on wage expectations over the next 12 months, according to data from the BOS, weak business profitability has counterbalanced that, keeping overall expectations of wage growth low. ‘False alarm’ on recession: economists react to April’s GDP numbersCost of living dogs the dog days of summer The Bank of Canada’s CSCE labour market index increased slightly from low levels in the previous quarter, due to a decline in perceived risk of losing a job, particularly among workers in sectors most exposed to U.S. tariffs and trade policies. Public service workers also reported a decline in their perceived risk of losing their job despite recent cuts. However, concerns about job loss remain elevated among workers in sectors most exposed to trade, and many still describe the labour market as “subdued” because of economic uncertainty and concerns about artificial intelligence. “The perceived risk of losing a job remains above the historical average among workers in sectors where exposure to task replacement by AI is higher,” the CSCE noted. • Email: ptran@postmedia.com
Consumers, businesses expect inflation to rise above 3% over the next year, Bank of Canada surveys find
