Canadian Business Sentiment Weakens as Inflation Expectations Rise

Canadian businesses became more pessimistic and expected higher inflation after trade negotiations with the United States failed, adding a weaker confidence signal ahead of the Bank of Canada’s Oct. 28 interest rate decision.

The central bank’s survey captures business leaders’ views of the economic outlook. The decline in sentiment and rise in inflation expectations followed the unsuccessful talks, though the available findings do not establish what drove either change.

The negotiations took place amid a broader trade dispute.

The change in expectations also comes as Canada’s recent inflation measures have diverged. Annual inflation rose to 3.1% in September while core inflation eased to 1.85%. Higher energy costs lifted the overall reading. Those figures measure price changes already recorded, while the survey reflects what businesses expect ahead.

The Bank of Canada held its overnight rate target at 2.25% on Sept. 2. Its next interest rate announcement is scheduled for Oct. 28.