Consumers remain apprehensive due to high prices and economic uncertainty stemming from the U.S. trade dispute, despite some positive signs, as per the latest Bank of Canada survey. Respondents express concerns about potential difficulties in meeting debt obligations and job security. They anticipate persistent inflation in the short term, largely attributing it to tariffs.
These worries have dampened their willingness to spend, with factors like elevated prices, uncertain economic conditions, and increased housing expenses cited as impediments. More participants believe their financial situation has worsened compared to the previous quarter.
On a brighter note, respondents are more optimistic about job prospects this quarter, with an improved outlook on long-term inflation. However, overall consumer expectations have decreased in the fourth quarter, remaining below pre-pandemic levels and lower than before the trade conflict with the U.S. commenced last year.
According to Claire Fan, a senior economist at RBC, the gap between perceived sentiment data and actual economic indicators has widened over the past year. Respondents in the Bank of Canada survey suggest that the worst impacts of the trade war have passed, indicating a more stable Canadian economy than initially feared.
Although job growth has slowed and the unemployment rate slightly increased recently, the labor market has largely rebounded. The country avoided a technical recession in November, and inflation has stayed within the Bank of Canada’s target range. However, many respondents still view the labor market as weak, especially those in trade-dependent sectors.
Nearly half of the survey participants believe Canada has sidestepped the most severe repercussions of trade tensions with the U.S., with a portion indicating that the worst has already transpired. Despite this sentiment, uncertainties linger regarding Canada’s trade relationship with the U.S., including the status of IEEPA tariffs and the future of the Canada-U.S.-Mexico trade agreement.
In terms of the cost of living, consumers like Brad Berg note a continuous rise in prices, particularly in food and shelter expenses. While headline inflation has stabilized, StatsCan reports a notable spike in grocery inflation to 3.5% in 2025, up from 2.2% in 2024. This persistent increase in prices, especially for essential items, impacts consumers more significantly.
Food economist Mike von Massow explains that consumers are more sensitive to price hikes, especially for groceries, as it is a regular expense that directly affects their budget. The psychological impact of rising prices can overshadow any instances of stable or decreasing costs. Lower-income households are particularly vulnerable to these challenges, as they have limited means to mitigate the financial strain.
In conclusion, consumer sentiment remains cautious due to ongoing economic uncertainties and price escalations, particularly in essential goods like groceries. The evolving trade landscape and domestic economic conditions continue to influence consumer outlook and spending behavior.