Bank of Canada Surveys Show Worsening Business Outlook and Sharply Higher Inflation Expectations After Trade Talks Collapse

The Bank of Canada's quarterly Business Outlook Survey and Canadian Survey of Consumer Expectations, released Monday, showed inflation expectations rising noticeably and business sentiment deteriorating, driven by the collapse of Canada-US trade talks at the end of August, elevated oil prices tied to the Middle East conflict, and new tariffs. Firms signaled plans to pass higher input costs through to customers, adding to price pressures, while hiring intentions remained soft and uncertainty over whether inflation would return to the 2% target increased. Long-term inflation expectations among households rose to nearly 4%.

Most of the survey results were collected before trade talks between the United States and Canada fell apart, yet the bank's outlook indicator still edged down to minus 0.33. The combination of worsening sentiment and rising pass-through intentions reinforces concerns at the Bank of Canada, which has held its benchmark rate at 2.25% since September 2 while Governor Tiff Macklem has said the bank stands ready to raise borrowing costs multiple times if needed.

The surveys, released alongside September inflation data, are the final major indicators before the Bank of Canada's next interest rate decision and monetary policy report scheduled for October. Markets have been pricing in increasing odds of a 25 basis point hike, with analysts pointing to persistently high global energy prices and tariff-driven cost pressures as the primary catalysts. Exports and business investment are already being weighed down by trade tensions, raising the stakes for policymakers balancing inflation risk against slowing growth.