Bank of Canada survey: business sentiment worsens, inflation expectations rise

Photo: Tom Fisk / Pexels The Bank of Canada’s latest survey reveals a deterioration in business sentiment and an increase in inflation expectations following unsuccessful trade negotiations between Canada and the United States. The survey, which includes responses from business leaders, indicates that firms are more pessimistic about the economic outlook, with inflation expectations notably climbing. These developments come on the heels of the U.S. imposing a 50% tariff on Canadian goods, valued at approximately $28 billion, prompting Canada to vow retaliation. The market’s response shows an increased likelihood of the Bank of Canada considering a significant rate hike at its upcoming October announcement, as reflected in the prediction markets. Key Takeaways Market pricing suggests a higher probability of a significant rate hike by the Bank of Canada, consistent with the worsened business outlook and rising inflation expectations. The 32.2% YES pricing for a 25 basis points increase in the overnight rate reflects a moderate expectation of rate adjustment. Current odds indicate a 68% likelihood of no change to the rate, suggesting uncertainty remains over the Bank’s potential cours...