Iran War Drives Up Canada’s Inflation Expectations

(MENAFN) The ongoing war in Iran is rattling Canada's economic outlook, stoking inflation fears and prompting households to tighten their purse strings, according to closely watched survey data published Monday by the Bank of Canada.

Corporate inflation expectations for the year ahead climbed sharply to 3.8% by end of March, a significant jump from 3% recorded in February. Longer-term projections followed suit — two-year expectations rose to 3.4% from 2.8%, while five-year forecasts moved up to 3% from the same baseline.

The human toll of the conflict on consumer confidence was stark: more than 80% of surveyed households anticipated the war would inflict economic damage on Canada and accelerate price increases. Among those polled after hostilities erupted on Feb. 28, roughly one in five — 21% — had scrapped or delayed travel plans, citing soaring costs, while 28% had pulled back on major purchases.

The Bank of Canada noted that its primary first-quarter business and consumer surveys were completed before the conflict broke out. However, follow-up interviews were subsequently conducted with companies most vulnerable to energy price spikes and a targeted segment of households.

Businesses flagged surging input costs across fuel, freight, fertilizers, and exchange rates. Fuel-dependent industries — spanning agriculture, oil and gas, transportation, and sections of manufacturing — were already absorbing elevated price pressures. Yet many firms acknowledged they lacked the pricing power to push those costs onto consumers, with some shouldering the burden entirely amid weak demand, strained household budgets, and competitive market forces.

The survey findings dovetail with the Bank of Canada's March decision to keep its policy rate anchored at 2.25%, with officials signaling they would look past the immediate oil-price shock. The central bank's next rate decision is set for April 29.

Even before the war erupted, near-term inflation expectations among Canadian consumers had remained elevated above historical norms, driven in part by persistently high food costs. Grocery prices surged 4.4% year-on-year in March, accelerating from a 4.1% rise in February.

Energy prices delivered a further blow, spiking 21.2% in March compared to February, while consumer prices climbed 0.9% over the same period, Statistics Canada reported Monday. Canada's annual inflation rate accelerated to 2.4%, up sharply from 1.8% in February.

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