Bank of Canada: Oil Shock Dented Business Sentiment
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- Bank of Canada quarterly business survey found Canadian business sentiment declined after improving for three quarters, dented by the oil price shock from the U.S.-Iran war, with companies trimming sales outlooks and penciling in higher selling prices.
- Nearly three-quarters of firms told the Bank of Canada their costs rose because of the war, and about a third said they would fully pass those increases on to customers, while business inflation expectations for the next two years climbed to the 3%–3.5% range.
- The survey was conducted May 1–21 when benchmark oil was above US$100 a barrel due to the Strait of Hormuz closure; since the mid-June U.S.-Iran peace deal, WTI has fallen to roughly US$68, near pre-war levels.
- Governor Tiff Macklem said the supply-side shock pushing headline inflation to 3.2% in May isn't spreading to broader prices, and financial markets widely expect the central bank to hold rates steady at its July 15 decision.
- In the Prairies, oil and gas firms reported stronger sales and hiring outlooks, with Calgary consultations finding conventional producers ramping up faster than oil sands operators, who remain cautious due to long project cycles.
- Export outlooks improved "well above historical average," with fewer firms citing U.S. trade tensions as a drag, supported by strong commodity prices and American demand tied to AI data centre build-out.
- A separate consumer survey found Canadian households scaled back spending plans, with job-loss concerns easing—particularly in trade-exposed sectors—falling close to pre-trade-tension levels, though consumers continue to view the labour market as weak.
Why it matters: With markets pricing in a rate hold on July 15 and headline inflation already at 3.2% in May, the BoC's core question is whether the oil shock morphs into broad-based price pressures—nearly three-quarters of firms reported war-driven cost hikes and one-third plan to pass them fully through, though follow-up surveys show expectations easing after the mid-June Iran deal that pulled WTI back to roughly US$68.
