Canadian consumers expect higher prices, soft labor market
The Bank of Canada's latest Survey of Consumer Expectations for Q1 2026 reveals muted spending plans and a soft labor market, with near-term inflation expectations remaining above average. A special survey indicates most households expect the Middle East war to weaken the economy and raise prices.
Spending plans muted, job fears persist
In the first quarter of 2026, Canadian consumers' spending plans remained muted, primarily due to persistent concerns about high prices and economic uncertainty.
Despite this, consumers became less negative about their spending outlook compared to the previous quarter, with improvements concentrated among workers in trade-sensitive sectors as trade policy uncertainty eased.
Consumers also continued to favor Canadian-made goods and domestic vacations, a preference they expect to maintain long-term.
The labor market was still viewed as soft, with perceived job loss probability increasing marginally.
This rise in job insecurity was particularly noted among public sector workers and those in sectors where artificial intelligence poses a higher risk of task replacement.
Inflation outlook and geopolitical shadow
Before the outbreak of the war in the Middle East, consumers' near-term inflation expectations for one and two years ahead were largely unchanged from the previous quarter and remained above the survey's historical average.
Strong food price inflation continued to be a significant driver of these elevated expectations.
Long-term inflation expectations, however, saw a slight decline compared to 12 months prior.
A special survey conducted after the war's onset revealed that most Canadian households anticipate the conflict will weaken the national economy and lead to higher prices, particularly for gasoline and food.
This concern also prompted some households to postpone or reduce major spending and travel plans.
Geopolitics adds new layer of uncertainty
Canadian consumers were already cautious, facing high prices and a soft labor market, which dampened spending plans.
The Middle East war now introduces a significant new layer of uncertainty, directly impacting inflation expectations and potentially shifting spending behavior.
This external shock adds considerable complexity to the Bank of Canada's policy outlook, demanding careful monitoring.