Bank of Canada: Half of firms plan to raise prices again — an effort to gain back the profits tariffs already ate

A year ago, the picture was different: weak demand was limiting businesses’ ability to pass tariff-related costs on to customers. The BoC said improving demand is now giving some firms more room to raise prices, although competition continues to constrain others.

“These pricing plans reflect some improvements in demand as well as firms’ desire to recover margins compressed by earlier cost increases,” the BoC said.

Renewed trade tensions add cost pressure

Most of the BoC’s interviews took place before Canada-U.S. trade talks broke down on Aug. 21 and new Canadian counter-tariffs were announced. Firms surveyed after that point were more likely to say trade tensions had raised their costs and selling prices, and their inflation expectations rose again in September alongside higher oil prices. Even so, more of those firms reported higher costs than higher selling prices, which the BoC says is consistent with tariff costs being only partly passed on to customers.

Firms, especially consumer-facing ones, also plan to keep passing on earlier cost increases over the next 12 months.

The BoC said firms’ expectations for increases in input costs and selling prices had moderated but remained elevated.

How much firms ultimately pass on will depend on their cost pressures, demand and consumers’ willingness to pay more.

Small businesses are split on passing costs along

Simon Gaudreault, chief economist and vice-president of research at the Canadian Federation of Independent Business (CFIB), which represents small and medium-sized businesses across Canada, says the picture looks different for small businesses.

The two surveys capture different parts of the economy. The BoC interviews senior managers at firms selected to reflect the makeup of Canada’s business sector, while the CFIB surveys its own members.

“Most businesses continue to absorb all or part of these additional costs,” Gaudreault told Money.ca. The CFIB’s third-quarter 2026 tariff research found that 28% of businesses planned to pass all their tariff-related costs on to customers, though most expected to pass on at least some. Its separate research on fuel costs found that just 4% expected to pass on all their higher fuel costs. A third expected to pass on none of those costs, and on average, firms expected to pass on only about 21%.

Price plans are climbing in some sectors, though. The CFIB found that 39% of small businesses planned to raise prices by more than 3% over the next 12 months, above the top of the BoC’s 1% to 3% inflation-control range. That share is up 4.3 percentage points from a year earlier, with the sharpest increases in tariff-exposed industries such as manufacturing and wholesale trade, where more than half now plan increases above 3%.

The CFIB’s October 2026 Monthly Business Barometer also identified fuel as the most commonly reported cost constraint, cited by 66% of businesses. Tax and regulatory costs followed at 61%, while wages and insurance were each cited by 57%. More recently, small businesses scaled back their pricing plans: the average price increase they expect over the next year eased to 2.8% in October, down 0.5 percentage points from September. That survey was conducted in early October, after Canada-U.S. trade talks broke down in August.

Gaudreault said the CFIB’s data showed “limited evidence at this point that the ongoing trade war and geopolitical tensions are significantly contributing to consumer inflation.” But he cautioned that businesses operating in competitive markets with narrow margins cannot absorb rising costs indefinitely. If cost pressures persist, more may eventually adjust their prices, although he said the CFIB’s data does not yet show a broad-based trend in that direction.

What it means for consumers

Inflation is already running above the BoC’s 2% target. The consumer price index rose 3.1% year over year in September, up from 3.0% in August, according to Statistics Canada, the country’s national statistical agency. Higher fuel prices were the main driver, while grocery price growth continued to slow.