Bank of Canada Reports Rising Inflation and Recession Fears

The Bank of Canada released its quarterly Business Outlook Survey and Canadian Survey of Consumer Expectations on July 6, 2026, indicating that geopolitical instability and trade tensions have severely hampered economic confidence. The reports reveal that inflation expectations reached a roughly four-year high in the second quarter, with both consumers and business leaders expecting inflation to exceed 3% over the next year. This trend is primarily attributed to spiking energy prices caused by the war in Iran and economic uncertainty stemming from United States tariffs.

Business confidence declined as rising input costs impacted sales expectations for most firms. The share of businesses anticipating a recession within the year rose to 17 per cent. While the oil and gas sector in the Prairies saw growth and increased hiring due to higher commodity prices, other trade-exposed sectors and industries vulnerable to artificial intelligence reported high concerns over job losses.

Inflation peaked in April and began to decline following a mid-June peace deal between the United States and Iran. Despite this dip in near-term expectations, consumer spending intentions declined throughout the second quarter. To better track these volatile shocks, the central bank is splitting its benchmark indicator into two separate measures for activity and prices. The Bank of Canada is expected to maintain its benchmark interest rate at 2.25 per cent during its July 15 decision.