Bank of Canada Survey: Firms Fear Pick Up in Inflation Due to US Tariffs

The Bank of Canada's latest Survey of Consumer Expectations (SCE) has revealed that Canadian firms are increasingly concerned about a potential pick-up in inflation, largely driven by fears of US tariffs. The survey, conducted in the fourth quarter of 2024, showed that businesses are worried about the impact of tariffs on their operations and profitability.



The survey results indicate that a significant number of firms expect higher inflation in the coming months, with many attributing this to the potential imposition of US tariffs on Canadian goods. The proposed 25% blanket tariff on Canadian exports, for instance, could shrink Canada's GDP by 2.6% and cost Canadian households an average of $1,900 annually. For the US, this would mean a 1.6% GDP drop, with families losing $1,300 per year. Beyond the economic impact, tariffs would disrupt industries like automotive, agriculture, and energy, making everything from groceries to cars more expensive.

The survey also highlighted the sectors most vulnerable to US tariffs, including energy products, automotive industry, consumer goods, forestry products, industrial machinery, and chemicals and plastics. These sectors are heavily reliant on US trade, and tariffs could lead to increased costs, reduced competitiveness, and lower stock performance.

The Canadian Federation of Independent Business (CFIB) survey, conducted in January 2025, echoed these concerns. The CFIB found that 65% of small businesses would increase prices for consumers to offset tariff impacts, while 69% said tariffs would lead to higher costs of doing business. This suggests that firms may pass on the increased costs associated with higher inflation to consumers by raising their prices, potentially leading to a decrease in consumer demand if prices become too high.



However, firms' expectations of higher inflation may also influence their investment and hiring decisions. In the Bank of Canada's business outlook survey, investment and hiring intentions remain soft, with plans for outlays over the next year below typical levels. Firms may be hesitant to invest in new equipment or hire additional employees if they expect inflation to erode their profit margins in the future.

In conclusion, Canadian firms' fears of a pick-up in inflation due to US tariffs are well-founded, as evidenced by the Bank of Canada's SCE and other surveys. While the impact of tariffs on the economy and businesses is significant, firms can mitigate these risks by adopting a multi-faceted approach, including scenario planning, supply chain reinvention, tariff engineering, and legal strategies for trade defense. By doing so, businesses can better navigate the uncertainty posed by tariffs and safeguard North America's most successful trade relationship for the benefit of all.