Bank of Canada reports rising inflation expectations and tariff concerns

The Bank of Canada’s latest outlook surveys indicate rising inflation expectations among both businesses and consumers. While business sentiment showed average improvement in the third quarter, new trade tensions are weighing on future outlooks.

Following the breakdown of trade talks between Canada and the United States in late August, firms reported that new U.S. tariffs and Canadian counter-tariffs are dampening sentiment and weakening outlooks for investment and exports. The bank noted that these tariffs, alongside rising energy prices, are putting upward pressure on costs and prices.

Approximately half of the surveyed firms plan to pass increased input costs on to customers to mitigate margin compression. These rising expectations have led market participants to anticipate potential interest rate hikes by the central bank to combat persistent inflationary pressures.