How did the war in Iran affect Canadian businesses' and consumers' inflation expectations, according to the Bank of Canada survey?

According to the Bank of Canada survey, the war in Iran caused a sharp rise in inflation expectations among both businesses and consumers: 44% of business respondents expected inflation to exceed 3% over the next two years—up from just 11% in the first quarter—and consumers’ two-year and five-year inflation expectations rose to 4% and 3.4%, respectively. The bank attributed this spike to rising Middle East tensions that pushed up energy and domestic gasoline prices, and noted that follow-up surveys after a tentative US–Iran peace deal showed these expectations eased somewhat as global energy and gasoline prices fell.

What impact did the war-related geopolitical uncertainty and higher oil prices have on Canadian business activity and investment plans, particularly among oil producers?

The Bank of Canada reported that geopolitical uncertainty from the war in the Middle East and rising input costs weighed on overall business conditions, contributing to a slightly weaker business outlook indicator (−0.39) and a divergence between activity and price outlooks—higher oil prices pressured price expectations upward but dampened activity expectations outside the Prairies. However, most conventional and oil sands producers indicated they could increase capital expenditures and production while still meeting other priorities like paying dividends and reducing debt.