The Bank of Canada says consumer spending plans weakened and inflation expectations rose in the third quarter of 2026, even as businesses reported improving sales outlooks and consumer financial health strengthened, with both households and firms facing continued uncertainty over trade tensions, tariffs and elevated prices.
The Bank released the reports on Monday.
The Canadian Survey of Consumer Expectations was conducted through an online panel from August 5 to 27. About three‑quarters of responses were collected before trade talks between Canada and the United States broke down on August 21, and the subsequent announcement of new Canadian counter‑tariffs. Follow‑up phone interviews took place from August 24 to September 4, 2026, said the Bank
Overview
- In the third quarter of 2026, consumers’ long-term inflation expectations rose to match elevated shorter-term expectations. Consumers continued to cite trade tensions and energy prices as key sources of inflation. Expectations at all horizons moved higher after trade talks between Canada and the United States broke down.
- Consumers reported better financial health than in the previous quarter. Gains in the value of financial assets and greater confidence in the labour market were cited as reasons for the improved expectations of future financial health.
- Workers’ perceptions of the labour market improved slightly but remain below the survey average. Compared with the previous quarter, labour market perceptions rose among workers who are more exposed to trade with the United States but deteriorated among workers in sectors where artificial intelligence poses a higher risk of task replacement.
- Despite improvements in financial health and labour market perceptions, spending plans deteriorated from already weak levels. High prices and economic uncertainty continue to weigh on consumers.
The Business Outlook Survey was conducted by in-person, video and phone interviews from August 6 to September 2. About three-quarters of the interviews took place before trade talks between Canada and the United States broke down and new Canadian counter‑tariffs were announced. The Business Leaders’ Pulse is conducted online every month; the latest results are from July, August and September. This quarter’s publication also includes results from special consultations in July and August about how firms are adapting to trade tensions and uncertainty, said the Bank
Overview
- Survey evidence, gathered mostly before the breakdown in Canada‑US trade talks and the announcement of new counter‑tariffs, shows that overall business sentiment improved in the third quarter of 2026 after deteriorating in the previous quarter.
- Firms reported better sales outlooks than in the second quarter. At the time of the survey, a lessening of the drag from both trade tensions and geopolitical uncertainty in the Middle East largely drove the improvement. Businesses also reported improved outlooks for export sales, supported primarily by solid US demand and high oil prices.
- Firms’ investment intentions eased slightly but remain robust. Trade tensions and related uncertainty are weighing on the plans of several firms, but solid demand and elevated commodity prices support the investment plans of other firms. Despite some improvements in demand, firms’ hiring intentions remain soft, and most firms plan to keep headcounts unchanged.
- The majority of firms still report spare capacity, but a slightly larger share than last quarter reported that they would have difficulty meeting an unexpected increase in demand.
- Firms’ expectations for growth in their input and selling prices moderated but remain elevated. These expectations were often attributed to the impact of high global oil prices and trade tensions.
- Firms facing larger‑than‑normal cost increases plan to continue passing them on to customers. For several firms, plans to further pass through costs reflect somewhat improved demand conditions and efforts to make up for past margin compression.
- Compared with the previous quarter, firms’ inflation expectations eased overall but remain elevated.
- Results collected since the breakdown in Canada‑US trade negotiations suggest that the new US tariffs and Canadian counter‑tariffs are weighing on firms’ outlooks. Inflation expectations have risen alongside the new tariffs and the recent rebound in energy prices. The tariffs are also dampening business sentiment, weakening outlooks for exports and investment, and putting upward pressure on costs and prices.
- More generally, firms are adjusting to trade tensions through a range of measures, including modifying supply chains, increasing efficiency, exploring new markets and scaling back on capacity.
Maria Solovieva, Economist, TD Economics, said: “Overall, both business and consumer sentiment rose in Q3, although they remained subdued. As with the previous two surveys, the timing of the data collection complicates the interpretation of the results, with responses collected after the collapse of Canada-U.S. trade negotiations pointing to a modestly more negative outlook. Nevertheless, we view overall sentiment as supportive of growth on balance.
“The divergence between consumers’ and businesses’ inflation expectations is puzzling: consumers anticipate stronger and more persistent long-term pressures, while businesses continue to view the recent inflation shock as temporary. The focus will remain on the month-to-month inflation prints, as the share of firms intending to raise prices remains elevated. On that note, today’s inflation report suggests that those intended price hikes are still slowly manifesting, giving the Bank little justification for raising rates at next week’s policy meeting.”
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