BOC surveys show higher inflation expectations, passthrough
By Erik Hertzberg and Nojoud Al Mallees
(Bloomberg) — Bank of Canada surveys showed inflation expectations moving higher, and more evidence that firms plan to pass on higher input costs to customers.
Though most of the survey results were taken before trade talks between the U.S. and Canada fell apart at the end of August, the bank said “overall business sentiment improved” and sales outlooks had improved in the third quarter. The bank’s outlook indicator rose slightly to minus 0.33.
At the same time, the bank said results gathered since the re-escalation in trade tensions suggest the new tariffs are “weighing on firms’ outlooks.”
“Inflation expectations have risen alongside the new tariffs and the recent rebound in energy prices,” the bank said Monday. “The tariffs are also dampening business sentiment, weakening outlooks for exports and investment, and putting upward pressure on costs and prices.”
The so-called business pulse survey, which was conducted into September, showed a spike in firms’ expectations of inflation a year and two years from now. Firms were also less certain about the timing of when inflation would return to the bank’s 2% target, and almost a quarter of firms — a larger share than in the previous quarter — said it was too hard to say.
More firms were also reporting a “slight or significant” increase in their costs and selling prices due to the trade tensions. More than 40% of firms facing larger than normal cost increases said they plan to pass those costs on to customers over the next twelve months. About a quarter say they’ve already done so.
“For several firms, plans to further pass through costs reflect somewhat improved demand conditions and efforts to make up for past margin compression,” the bank said.
In the broader business survey, investment intentions eased but remain “robust,” the bank said.
The bank’s survey of consumers also showed Canadians anticipated higher longer-term inflation expectations, a worrying sign for policymakers.
Consumers’ expectations of inflation five years from now spiked to 3.91%, marking the highest level since the second quarter of 2022, when the yearly change in the consumer price index hit the highest level in decades.
“Expectations at all horizons moved higher after trade talks between Canada and the United States broke down,” the bank said.
Consumers also felt better about their financial health than they did in the previous quarter, citing gains in the value of financial assets and greater labour market confidence.
While workers’ perceptions of the job market improved slightly, they remained below the survey average. Workers in sectors more reliant on trade with the U.S. also had improved job market perceptions, though the central bank notes most responses were collected before trade talks fell apart.
“Part of the improvement may reflect conditions among natural resource firms, where elevated commodity prices and expansion in production and transportation capacity are supporting export sales, particularly in oil and gas,” the central bank said.
Meanwhile, expectations deteriorated among workers in sectors where artificial intelligence poses a higher risk of task replacement.
Although consumers reported improvements in their financial health and job market perceptions, their spending plans deteriorated further as high prices and economic uncertainty continue to weigh on them.
Most of the results received for both the business outlook and consumer surveys were received before the reescalation of trade tensions, but were supplemented with the bank’s business pulse survey.
Earlier on Monday, Statistics Canada reported that headline inflation rose to a 3.1% yearly pace, but yearly core measures eased.
The Bank of Canada sets interest rates Oct. 28. Traders in overnight swaps were pricing about a two-thirds chance of hike at that meeting.
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Last modified: October 19, 2026
