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Consumers and businesses expect inflation to rise above 3% in next year, Bank of Canada finds

Published July 7, 2026 at 2:51 AM UTC

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The Bank of Canada's latest Canadian Survey of Consumer Expectations, released on July 6, 2026, reveals that both consumers and businesses anticipate inflation to surpass 3% over the next 12 months. This marks a slight increase from the previous quarter, indicating heightened concerns about rising prices among Canadians.

**Consumer Expectations**

The survey indicates that a growing number of consumers expect inflation to exceed 3% in the coming year. This uptick is attributed to several factors, including ongoing trade tensions and rising energy prices. Notably, approximately 70% of consumers anticipate that the war in the Middle East will contribute to higher inflation over the next 12 months. Concerns about elevated gasoline prices are prevalent, with some respondents expressing worries about potential widespread price increases across various sectors.

Despite these concerns, consumers' perceptions of the labor market have improved modestly. The perceived risk of job loss has declined, particularly among workers in sectors more exposed to trade. However, high prices and economic uncertainty continue to weigh on household spending plans. Households that believe the Middle East conflict will significantly raise inflation are more likely to substitute for cheaper essentials, curtail discretionary spending, and reduce driving.

**Business Expectations**

The Business Outlook Survey, also released on July 6, 2026, shows that 44% of businesses expect inflation to rise by more than 3% over the next two years, a significant increase from 11% in the first quarter. This surge is largely attributed to rising energy prices linked to the Middle East conflict. Firms are also anticipating major increases in selling and input prices. Despite these challenges, many businesses are boosting their investment and production plans, particularly in the oil sector, to capitalize on higher commodity prices.

**Implications for Monetary Policy**

The Bank of Canada's findings suggest that inflation expectations are becoming more entrenched, which could influence future monetary policy decisions. The central bank has previously indicated that it expects inflation to ease back to the 2% target in 2027. However, the persistence of higher inflation expectations may necessitate a reassessment of this outlook.

In conclusion, the Bank of Canada's latest surveys highlight a growing concern among both consumers and businesses about rising inflation, driven by factors such as trade tensions and geopolitical conflicts. These developments underscore the need for ongoing monitoring and potential adjustments in monetary policy to ensure economic stability.