The central bank reported that "overall business sentiment improved," with stronger third quarter sales views. Its outlook indicator ticked up to minus 0.33, while investment intentions eased but remained "robust."
Most responses were logged before trade discussions with the United States ended in late August. Information that arrived after tensions reignited indicates the fresh tariffs are dragging down companies' outlooks.
Inflation views picked up. The business pulse survey, which ran into September, showed a jump in firms' inflation expectations one and two years ahead. Companies also grew less certain about when inflation would return to the 2% target, with almost a quarter saying it was too hard to say.
Consumers pointed the same way. Longer term expectations rose, with the five-year reading at 3.91% - the highest level dating back to the second quarter of 2022; at that point, the annual change in the consumer price index reached a decades high. As the bank put it, "Expectations at all horizons moved higher after trade talks between Canada and the United States broke down."
On Monday, the bank linked the shift to two forces. "Inflation expectations have risen alongside the new tariffs and the recent rebound in energy prices," it said. "The tariffs are also dampening business sentiment, weakening outlooks for exports and investment, and putting upward pressure on costs and prices."
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More firms reported slight or significant increases in costs and selling prices tied to trade tensions. Among companies seeing larger than normal cost increases, more than 40% plan to pass those on over the next 12 months, and about a quarter say they already have. "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.
The bulk of responses for the business outlook survey and the consumer survey arrived before the newest trade escalation, with the business pulse results adding extra detail.
Households said their financial health improved from last quarter, citing gains in financial asset values and more confidence in the labor market. Workers' perceptions of job prospects edged up but stayed below the survey average.
Sectors more tied to U.S. trade also saw better job market perceptions, though most answers predated the breakdown in talks. "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 bank said. Expectations worsened in industries in which artificial intelligence presents a greater chance of tasks being replaced. Despite better readings on finances and jobs, spending plans weakened further as high prices and uncertainty weighed.
Earlier Monday, Statistics Canada reported headline inflation accelerated to a 3.1% year-over-year pace, while core measures on a yearly basis softened. On Oct. 28, the Bank of Canada will decide on its policy rate, and overnight swaps put the odds of a hike at about two thirds. The bottom line: with tariffs, energy and higher inflation expectations in the mix, rate sensitivity still matters for your portfolio as trade tensions, price pressures and growth jockey for position.
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