Tariff uncertainty and surging oil prices push business inflation expectations higher in Q3 2026
Business sentiment in Canada improved in the third quarter of 2026, but the Bank of Canada’s Business Outlook Survey (BOS) carries a harder signal for mortgage brokers.
Nearly a quarter of surveyed firms, the largest share since the question was introduced, say they cannot estimate when inflation will return to the central bank’s 2% target.
‘Too hard to say’: the new refrain on inflation
The survey, conducted between August 6 and September 2, shows the share of firms planning for a recession fell from 17% to 6%, the lowest reading since 2023. But roughly three-quarters of those interviews took place before Canada-US trade talks collapsed on August 21. Results gathered after that date show a sharp deterioration.
Claire Fan, senior economist at Royal Bank of Canada (RBC) in Toronto, summarized the shift plainly.
“Firms’ one- to two-year-ahead inflation expectations declined between May and August as oil prices and trade uncertainty moderated, but resurged in September to near spring highs as those trends reversed,” she wrote.
RBC’s analysis of the survey data puts one-year-ahead business inflation expectations at 3.7% in September, with two-year expectations rising to 3.1%.
Fan flagged the cost pass-through trend as a separate concern.
“Concerningly, half of firms surveyed — more than last quarter — plan to pass on cost increases to customers,” she wrote, noting that improved demand conditions and firms’ desire to recover margins compressed by earlier cost rounds are also driving the shift.
Canada’s annual inflation rate climbed to 3.1% in September, up from 3.0% in August, according to Statistics Canada data released Monday — and economists say the reading gives the BoC little reason to lift its overnight rate at the October 28 meeting. https://t.co/JN1kELMQ9B
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 19, 2026
Rate decision in focus as brokers seek clarity
For brokers advising clients ahead of the BoC’s October 28 decision, the picture is uncommonly unsettled. The annual consumer price index (CPI) rose to 3.1% in September, above the prior month’s reading.
Sherry Cooper, chief economist at Dominion Lending Centres Group (DLCG) in Canada, said the September reading keeps a hold in play.
“The September data support our base-case scenario that the Bank of Canada will remain on hold at its October 28 meeting,” she said.
“Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent.”
Fan framed the broader dilemma in terms mortgage brokers will recognize. “We continue to see fragile economic recovery as the biggest counterweight to heightened inflation risks, and expect caution from the BoC, especially when rising bond yields are already tightening financial conditions and raising borrowing costs for businesses and households,” she wrote.
RBC’s base case calls for no rate hikes until 2027, but Fan acknowledged that “risks to our base case forecast of no rate hikes until 2027 are tilted toward earlier moves — including potentially as early as next week’s decision.”
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