Middle East War Sparks Rising Costs, Threatens Canada’s Fragile Business Recovery

Canada’s business outlook showed early signs of recovery at the start of 2026, with firms expecting stronger sales and increased investment, according to a Bank of Canada survey conducted from Feb. 5 to 25. However, follow-up calls in March revealed a sharp shift as the Middle East war began driving up costs. Companies reported rising expenses tied to fuel, freight, fertilizers, and exchange rates, forcing many to revise input price expectations upward. While higher costs spread across sectors, not all firms could pass them to customers. At the same time, 21% of households cancelled trips due to rising travel costs, and 28% delayed major spending. Despite steady interest rates at 2.25%, policymakers warned that higher gasoline and food prices could lift inflation, though weak economic conditions may limit how much businesses increase prices.