Canadian Businesses Report Easing Cost Pressures, but Inflation Remains the Top Expected Obstacle

Canadian businesses are expecting less pressure from costs than they did three months ago, but inflation is still the obstacle most often cited for the period ahead. Statistics Canada said 59.8% of businesses expect at least one cost-related obstacle over the next three months in the third quarter of 2026, down from 64.3% in the second quarter.

Inflation remains the leading concern even after easing from its second-quarter level. Two in five businesses, or 41.6%, expect inflation to be an obstacle over the next three months, compared with 48.8% in the prior quarter. The latest reading is also close to the corrected 40.6% reported in the first quarter, showing that the spring increase in inflation concern has partly reversed rather than disappeared.

The Canadian Survey on Business Conditions was conducted from July 2 to August 6 and applies to employer businesses in Canada. Because respondents were asked about their expectations for the following three months, the outlook period can extend as far as November 6 depending on when each business completed the survey.

Cost pressures ease from the second-quarter high

Statistics Canada groups several issues into its cost-related obstacle measure: inflation, input costs, interest rates and debt costs, insurance, real estate or leasing and property taxes, and transportation costs. The decline to 59.8% therefore represents a broad reduction in the share of businesses anticipating at least one of those pressures, not a direct measure of how much their expenses have fallen.

The quarterly path also shows why the improvement needs context. Cost-related obstacles were expected by a corrected 58.9% of businesses in the first quarter, then climbed to 64.3% in the second quarter before falling back in the latest survey. The third-quarter figure is below the spring peak but remains slightly above the level at the start of the year.

Several recent price and labour indicators point in different directions. Raw material prices paid by Canadian manufacturers fell 2.2% in July from June, according to Statistics Canada, but were still 18.1% higher than a year earlier. Average hourly wages among employees increased 2.8% from July 2025, following a 3.3% annual increase in June. Those measures do not map one-for-one to the expenses of every business, but they help explain why some cost concerns can ease even when the overall price environment remains uncomfortable.

The latest survey also follows a period in which headline consumer inflation moved higher. Canada’s Consumer Price Index rose 3.0% in July from a year earlier after increasing 2.8% in June. For businesses, that reading does not necessarily describe their own input costs, but it reinforces the distinction between an improvement in expected obstacles and a return to low or stable price pressures.

Inflation remains the most common expected obstacle

Inflation was cited by 41.6% of businesses, making it the most frequently expected obstacle in the third quarter. The concern was especially common in accommodation and food services, where 58.3% of businesses identified inflation as an obstacle. Construction followed at 51.8%, while 48.7% of manufacturers expected inflation to create difficulty over the next three months.

Recruiting skilled employees ranked second nationally at 25.2%. Manufacturing had the highest share among the industries highlighted by Statistics Canada at 38.2%, followed by accommodation and food services at 33.6% and health care and social assistance at 31.7%. The result shows that labour availability remains a meaningful constraint even as the share of firms expecting cost-related problems has declined from the second quarter.

The survey also asked businesses to identify the obstacle they expect to be the most challenging. Inflation again ranked first, but at a much lower 12.4% of businesses. Recruiting skilled employees was the top challenge for 8.9%, and 7.2% selected the cost of inputs. That distinction matters because a business can expect several obstacles at the same time, while the most-challenging measure is intended to identify the issue likely to create the greatest difficulty.

Inflation concern has moved noticeably during the year. It stood at a corrected 40.6% in the first quarter, rose to 48.8% in the second and then fell to 41.6% in the third. Compared with the third quarter of 2025, when 45.2% of businesses expected inflation to be an obstacle, the latest reading is also lower. The year-over-year comparison suggests the pressure is less widespread than it was last summer, though inflation remains ahead of every other obstacle in the current survey.

Price plans soften, but businesses still see cost pass-through risk

Expectations for selling prices have also cooled. In the third quarter, 20.6% of businesses expect the prices of their goods or services to increase over the next three months. Accommodation and food services again stood out at 34.6%, followed by wholesale trade at 29.6% and retail trade at 27.8%. In the second quarter, 25.2% of businesses had expected to raise selling prices, so the latest reading points to less widespread near-term pricing pressure.

The broader operating outlook is mixed rather than weak. Nearly three-quarters of businesses, 72.6%, said they were very or somewhat optimistic about the next 12 months. That compares with 66.8% in the second quarter and 72.3% in the first. Near-term sales expectations are more restrained: 14.5% expect sales of goods or services to increase over the next three months, down from 19.4% in the second quarter, while 13.9% expect sales to decrease.

Trade-related costs remain another potential source of price pressure. Statistics Canada reported that 27.4% of businesses had passed cost increases related to tariffs on to customers during the 12 months before the survey. Another 37.7% said they had not passed those increases on, and 34.9% reported that they had not experienced tariff-related cost increases.

Looking ahead, 30.4% of businesses said they were very or somewhat likely to pass tariff-related cost increases to customers over the next 12 months. A further 14.7% were somewhat or very unlikely to do so, 18.7% were unsure, and 36.3% did not expect to have tariff-related cost increases to pass along. Those responses leave a meaningful channel through which higher business costs could still reach consumer prices even as the overall share of firms expecting cost-related obstacles has come down.

The third-quarter release is also the final iteration of the Canadian Survey on Business Conditions. Statistics Canada said the quarterly survey, which has been used since 2020 to provide a rapid read on employer businesses, will end with this release. That makes the August 31 results the last comparable quarterly snapshot in this series of how Canadian businesses rank inflation, labour constraints and other near-term obstacles.