Bank of Canada survey flags broader tariff-cost pass-through risk as demand improves
More Canadian firms expect to raise prices to recover tariff-related costs, adding to inflation pressure as demand strengthens.
The Bank of Canada’s third-quarter Business Outlook Survey indicates that roughly half of surveyed firms intend to pass through some or all cost increases associated with tariffs and the Middle East conflict. The reported shift is larger than in the preceding quarter and marks a change from a year earlier, when weaker demand limited companies’ ability to transfer tariff-related costs to customers. [1]
The central bank’s finding points to a margin-recovery dynamic rather than a uniform price response. Firms reported that stronger demand has given some of them more latitude to increase selling prices after earlier cost increases compressed margins, although competitive conditions continue to restrict others. Among firms interviewed after Canada-U.S. talks broke down on August 21 and new Canadian counter-tariffs were announced, respondents were more likely to report higher costs and selling prices, while inflation expectations rose again in September alongside oil prices. [1]
Cost pass-through nevertheless remains incomplete. More firms reported higher costs than higher selling prices, which the Bank of Canada characterized as consistent with only partial transmission of tariff costs to customers. Consumer-facing businesses in particular expect to continue passing through earlier cost increases over the next 12 months, but the eventual extent will depend on cost conditions, demand and consumers’ willingness to absorb higher prices. Expectations for input-cost and selling-price increases had moderated, though they remained elevated. [1]
Small-business survey results described in the report show a more mixed picture. The Canadian Federation of Independent Business found that 28% of respondents planned to pass all tariff-related costs to customers, while most expected to pass along at least some. Its research cited in the report also found that manufacturing and wholesale trade had the highest concentration of businesses planning price increases above 3% over the coming year. At the same time, the average expected small-business price increase eased to 2.8% in October from 3.3% in September, and the CFIB said it saw limited evidence so far of a broad consumer-inflation effect from trade tensions and geopolitical pressures. [1]
For households and policymakers, the survey adds a forward-looking price-risk signal rather than evidence that a full new round of increases has already occurred. Canada’s consumer price index rose 3.1% year over year in September, up from 3.0% in August, with higher fuel prices identified as the principal driver. The Bank of Canada interviews underlying the outlook survey covered about 100 firms between August 6 and September 2, meaning most took place before the August breakdown in bilateral trade talks. [1]
This is a significant inflation and margin signal because roughly half of surveyed firms say they plan to pass through some tariff- and other cost increases as demand improves, potentially exposing consumers and cost-sensitive businesses to additional price pressure. The rating is not higher because the finding is a survey-based intention, pass-through remains partial and competition still constrains many firms; the source also reports mixed small-business evidence rather than a confirmed economy-wide price increase. [1]