The Bank of Canada’s latest consumer survey found that spending plans weakened in the third quarter, even as consumers reported better financial health and slightly improved views of the labour market.
The survey, released Oct. 19, was conducted through an online panel from Aug. 5 to 27. The Bank said about three-quarters of responses were collected before Canada-U.S. trade talks broke down on Aug. 21, with follow-up phone interviews running from Aug. 24 to Sept. 4.
Spending intentions remained below the survey average, the Bank said. High prices of goods and services remained the main barrier to spending, while economic uncertainty tied largely to trade tensions with the United States continued to weigh on consumers.
The Bank’s survey data show expected household spending growth over the next 12 months fell to 3.35% in the third quarter from 3.75% in the second quarter. Expected income growth also slipped, moving to 2.13% from 2.23%.
That means households still expect spending to rise, but at a slower pace than they expected last quarter. The survey showed that 59.06% of respondents were cutting spending or delaying major purchases, or planned to do so, in light of inflation expectations. The corresponding figure for interest-rate expectations was 60.97%.
In follow-up interviews, the Bank said many respondents reported spending cautiously, reducing discretionary purchases, dining out less often, looking for deals or buying lower-cost alternatives.
Inflation expectations remain the main pressure point
Inflation expectations stayed elevated in the third quarter. The Bank said long-term inflation expectations rose to match already elevated shorter-term expectations, with respondents continuing to cite trade tensions and energy prices as major sources of inflation.
Survey data show one-year-ahead inflation expectations at 4.03% in the third quarter, down slightly from 4.08% in the previous quarter. Two-year-ahead expectations moved to 3.88% from 3.97%. Five-year-ahead expectations rose more clearly, reaching 3.91% from 3.39%.
Statistics Canada’s latest CPI release adds context for why price concerns remain sticky. The agency reported that the Consumer Price Index rose 3.1% year over year in September, following a 3.0% increase in August. Gasoline prices rose 27.8% year over year in September, while grocery price growth slowed to 1.7%. Even with slower grocery inflation, Statistics Canada said grocery prices were 33.0% higher than in September 2020.
Financial confidence improves, but recession worries persist
The Bank’s broader Canadian Survey of Consumer Expectations indicator edged higher in the third quarter, mainly because consumers felt better about their financial health. Respondents perceived a lower risk of missing a debt payment, reported easier access to credit and showed improved confidence about their finances over the next 12 months.
Survey data show the reported probability of missing a debt payment over the next three months fell to 5.29% in the third quarter from 7.37% in the second quarter and 9.24% in the first quarter. The Bank cautioned, however, that the financial-health improvements were measured before the September 2026 surge in bond yields.
Consumers’ labour-market perceptions also improved slightly, but remained below the survey average. About half of consumers continued to expect the Canadian economy to fall into a recession over the next 12 months, especially those who responded after Canada-U.S. trade talks broke down.
The labour-market section also carried a workplace technology angle. The Bank said perceptions deteriorated among workers in sectors where artificial intelligence poses a higher risk of task replacement. Those workers perceived a lower likelihood of finding another job. At the same time, about 40% of workers reported using AI at work, and workers who use AI estimated they would need about five extra hours each week to complete the same amount of work without it.
Retail sales still rose, so the picture is mixed
The consumer survey is forward-looking. Recent retail data still show actual spending rising.
Statistics Canada reported on Oct. 23 that retail sales increased 1.2% to $74.6 billion in August. Sales rose in all nine subsectors, led by motor vehicle and parts dealers. Core retail sales, which exclude gasoline stations and fuel vendors as well as motor vehicle and parts dealers, rose 1.1%. In volume terms, retail sales also increased 1.2%.
Retail e-commerce sales rose 1.1% to $5.6 billion in August, accounting for 7.6% of total retail trade. Statistics Canada’s advance estimate suggests retail sales increased 0.7% in September, although the agency said that early figure will be revised and was based on responses from 58.5% of companies surveyed.
For Canadian retailers, e-commerce merchants and service businesses, the practical implication is a more selective buyer rather than a buyer who has stopped spending altogether. The same household that continues to spend may still be more likely to compare prices, delay major purchases and favour budget-friendly options.
Businesses still plan to pass on higher costs
In the Bank’s Business Outlook Survey, also released Oct. 19, firms reported improved sales outlooks on average in the third quarter. But the Bank said responses collected after the breakdown in Canada-U.S. trade talks suggested new U.S. tariffs and Canadian counter-tariffs were weighing on business outlooks.
Roughly half of firms said they planned to pass on some or all of their cost increases related to the war in the Middle East and tariffs. The Bank said consumer-facing firms were among those planning to continue passing on past increases to customers over the next 12 months, while competitive pressures continued to limit some firms’ ability to raise prices.
Households are trying to limit spending because prices are high, while many firms are still dealing with higher costs and looking to recover margins.
Why the survey matters before the October rate decision
The Bank of Canada held its target for the overnight rate at 2.25% on Sept. 2. Its next scheduled interest-rate announcement is set for Oct. 28 and will be released alongside the Monetary Policy Report.
The consumer survey does not predict that decision. It does, however, show the Bank facing two uncomfortable pressures at the same time: inflation expectations remain elevated, while spending intentions have deteriorated from already weak levels.
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