In the first quarter of 2026, before the war in the Middle East, consumers’ spending plans remained muted, held back by concerns about high prices and economic uncertainty. Still, consumers became less negative about their spending plans than in the previous quarter as downward pressure from trade tensions eased, according to the latest Canadian Survey of Consumer Expectations released Monday by the Bank of Canada.
“Consumers continued to view the labour market as soft, with fears of losing their job still elevated. This quarter, concerns about job losses increased among workers in sectors where artificial intelligence poses a higher risk of task replacement,” said the Bank of Canada.
“Before the war in the Middle East, near‑term inflation expectations were largely unchanged and still above the survey’s historical average. Expectations of strong food price inflation remain an important driver of high one‑year‑ahead inflation expectations. Long‑term inflation expectations declined slightly from 12 months ago.
“Results of a special survey conducted after the outbreak of the war in the Middle East suggest most households expect the war to weaken the Canadian economy and raise prices.”
In its Business Outlook Survey, which was also released Monday, the Bank of Canada said survey evidence, gathered mostly before the war in the Middle East, shows that business sentiment improved slightly from last quarter to levels similar to those from before the trade conflict with the United States began.
“Firms expect improvements in sales growth. Fewer firms than last quarter reported that trade tensions are impacting their sales outlook, while more said public spending is supporting sales. Investment intentions improved, and hiring intentions have recovered from weak levels. This reflects improving domestic demand and a lessening of the effects of uncertainty. Nevertheless, some firms reported that trade tensions are dampening their plans to invest,” said the Bank of Canada.
“Businesses expect average-sized increases in input and selling prices. Survey results from before the start of the war in the Middle East indicate that firms largely expect stable price growth over the next 12 months. Firms’ one-year-ahead inflation expectations have ticked up slightly, driven by the views of those surveyed in March after the outbreak of war in the Middle East. However, expectations at all horizons remain below the peak reached during the height of the trade conflict in early 2025.
“Results of follow-up calls suggest that many firms are already facing higher input costs due to rising prices for energy, fertilizer and freight linked to the war in the Middle East. Others expect increases in the coming months as these costs are passed on by suppliers. Most firms’ outlooks for sales, investment and employment are roughly unchanged.”
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