Mucahithan Avcioglu
20 April 2026•Update: 20 April 2026
The war in Iran is driving up inflation expectations in Canada and prompting households to scale back spending, according to Bank of Canada survey data released Monday.
The central bank said Canadian firms raised their one-year inflation expectations to 3.8% at the end of March, up from 3% in February. Expectations for inflation two years and five years ahead also rose to 3.4% and 3%, respectively, from 2.8%.
More than 80% of households surveyed said they expect the war to hurt the Canadian economy and push inflation higher. Among consumers contacted after the conflict began on Feb. 28, 21% said they had canceled or postponed trips due mainly to higher travel costs, while 28% said they had delayed or reduced major purchases.
The Bank of Canada said its main business and consumer surveys for the first quarter were completed before the conflict, but follow-up calls were conducted with firms most exposed to higher energy prices and with a subset of households.
Many businesses said they had raised expectations for input costs, citing fuel, freight, fertilizers, and exchange rates. Fuel-intensive sectors, including agriculture, oil and gas, transportation, and parts of manufacturing, were already reporting higher prices.
At the same time, firms said weak demand, tight household budgets, competition, existing contracts, and limited pricing power were preventing many from fully passing higher costs on to consumers, with some absorbing part or all of the increase.
The findings aligned with the Bank of Canada’s March decision to hold its policy rate at 2.25%, when officials said they would look through the immediate oil-price shock. The next rate decision is scheduled for April 29.
Before the war, the bank said Canadian consumers’ near-term inflation expectations had remained above historical averages, partly due to persistently high food prices. Grocery prices in March were up 4.4% year-on-year, following a 4.1% rise in February.
Meanwhile, energy prices jumped 21.2% in March compared with February, while consumer prices rose 0.9%, Statistics Canada said Monday. The annual inflation rate increased to 2.4% from 1.8% in February.
