Canadian Businesses Brace For 5 Years of High Inflation: BoC Survey
Daniel Wong, April 22, 2026
Canadian businesses were bracing for elevated inflation—then the Iran War broke out. Now they’re doubting the Bank of Canada’s (BoC) ability to contain inflation, according to the Q1 2026 Business Outlook Survey. The central bank’s survey reveals firms are preparing for 5 years of elevated inflation.
Canadian Businesses Expected Inflation To Surge Before Latest War
The initial survey was conducted in the relative calm of February, pre-Iran War. It showed improving business confidence, despite elevated inflation expectations. The survey shows firms expect CPI’s annual growth to reach 3.0%, 100 basis points above the BoC target rate. That’s right on the BoC’s upper tolerance band, where rate hikes can become rapid to contain expectations. Even with trade war and recession fears on the horizon, firms feared an inflation shock.
Canadian Inflation Expectations Surge For The Next 5 Years
Canadian business expectations for CPI growth in 1, 2, and 5 years. The February survey marks the scheduled BOS results pre-Iran War; subsequent dates are weekly follow-up surveys.
A BoC follow-up survey reveals expectations shifted sharply after the Iran War began. In the first week of the war, inflation expectations briefly slipped. By week two, they surged and kept climbing until firms saw CPI hitting 3.8% within a year. Unfortunately, firms don’t see this as a short-term problem either.
The consensus shows firms see CPI at 3.4% in 2 years, 50 basis points higher than they did pre-conflict. That level is also 140 bps higher than the BoC target rate, and 40 bps above its upper bound of tolerance. The pressure remains 5 years ahead, where CPI is seen at 3.0%, up 20 bps from pre-conflict forecasts. The problem has shifted from elevated expectations to an indirect questioning of the BoC’s control.
Businesses Doubt Bank of Canada’s Ability To Control Inflation
These may seem like small numbers, but the impact won’t be. CPI rising from today’s 2.4% to 3.8% means currency decays 58% faster, 90% faster than the BoC target. Good news for policymakers depreciating debt, but difficult for the public to stomach. It’s also hard to justify foreign companies making big investments in a currency set to depreciate faster than the issuer expects.
The BoC is also likely to try to contain inflation if it approaches the upper band. This increases the odds of rate hikes or liquidity reduction to tame demand, making any rate relief at this month’s announcement unlikely.
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