Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectations (2026 Q2)

Canadian business and consumer sentiment remained subdued in Q2, while inflation expectations edged higher

Business sentiment

• The Bank of Canada’s Business Outlook Survey (BOS) was conducted between May 1 and May 21, before the interim agreement between the United States and Iran to end the war in the Middle East was signed in mid-June.
• The overall BOS indicator edged lower in Q2 but remained only modestly negative at -0.39 (from -0.35 in Q1) and above the lows seen during the peak of U.S. tariff uncertainty in the first half of 2025. The share of firms expecting a recession increased to 17%, up from 9% in the previous quarter.
• Firms’ sales expectations softened but remained positive, slipping below their long-run average. However, firms’ outlooks for exports improved to well above the historical average, reflecting easing concerns around U.S. trade policy.
• Investment intentions remained strong, largely unchanged from the first quarter. Firms continue to prioritize productivity-enhancing investments including equipment upgrades and AI integration.
• Hiring intentions weakened and slipped below their historical average. Firms in the Prairies remained the exception, reporting stronger hiring plans, supported by higher commodity prices.
• Wage growth expectations stabilized after several quarters of moderation, with firms expecting average wage growth of around 3.2% over the next year – in line with the historical average.
• Expectations for both input and output price growth increased in Q2, reflecting higher energy costs stemming from the conflict in the Middle East. Inflation expectations collected by the monthly Business Leaders' Pulse (BLP) survey showed that one-year inflation expectations peaked in April and have since declined. Five-year inflation expectations from the BLP were little changed from the previous quarter. This suggests firms view the recent inflation shock as largely temporary.

Consumer sentiment 

• The Bank of Canada’s Canadian Survey of Consumer Expectations (CSCE) was conducted between April 27 and May 21, with follow-up interviews taking place between May 22 and 27 – also before the U.S.-Iran memorandum of understanding on June 17.
• The overall CSCE indicator remained largely unchanged in Q2, remaining below its pre-pandemic average as sentiment continued to be weighed down by higher energy prices and elevated economic uncertainty.
• Consumer confidence remained constrained by the financial health index, which declined by another point in Q2.
• Spending intentions fell by four points, partially reversing the improvement seen in the previous quarter. Respondents cited concerns that the conflict in the Middle East will push inflation higher, alongside broader economic uncertainty. Households reported plans to respond by substituting toward lower-cost essentials, reducing discretionary purchases and driving less
• The labour market index improved modestly as consumer concerns about job loss eased.
• Consumer inflation expectations were mixed. One-year expectations remained unchanged at 4.1%, while two- and five-year expectations increased to 4.0% and 3.4%, respectively, reflecting both tariffs and higher energy prices.
  
   

Key Implications

• Overall, both business and consumer sentiment remained subdued in Q2.  However, as with the Q1 surveys, the timing of the data collection complicates the interpretation of the results. Both surveys were completed before the de-escalation of tensions between the U.S. and Iran and the subsequent decline in oil prices. As a result, they likely overstate the persistence of the recent energy-price shock. With oil prices having since retraced much of their earlier increase, sentiment should gradually resume its improving trend over the second half of the year. The most encouraging nugget from the BOS was that firms' investment intentions remained elevated, despite the uncertain backdrop.
• From the Bank of Canada’s perspective, inflation expectations remain the key takeaway. The rise in short-term inflation expectations was unsurprising given the temporary increase in gasoline prices. Longer-term business inflation expectations remained well anchored, while longer-term consumer inflation expectations edged higher but remained below their levels a year ago. Taken together, the surveys suggest that the recent energy-price shock is unlikely to generate persistent inflationary pressures, reinforcing the case for the Bank to remain on hold at next week’s policy meeting.
  
   

Disclaimer

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