Small firms absorb fuel costs while tariffs and rate odds cloud the outlook for owners
Canada’s economy is expected to grow 1.4% in the fourth quarter, down from 2.0% in the third, as US tariffs and high fuel costs squeeze small businesses, according to the Canadian Federation of Independent Business (CFIB), which represents 103,000 small and medium-sized firms.
The Main Street Quarterly report, produced with consulting firm AppEco and released Thursday, forecasts consumer price inflation holding at 3.0% in the third quarter and 2.9% in the fourth. It projects private investment plans growing 5.2% in the third quarter and 1.6% in the fourth. The private-sector job vacancy rate edged down to 2.6% in the third quarter, representing 375,000 unfilled positions.
A new section on business dynamics found that long-term optimism is a useful indicator of business formation. Over the past four quarters, optimism declined sharply and net business formation turned negative, CFIB said.
Firms weigh how much to pass on
Rising costs are pushing prices up. Nearly two in five businesses (39%) plan to raise prices by more than 3% over the next 12 months. Most expect to pass at least some tariff-related costs on to customers. About 28% plan to pass through the full amount, while 18% have not decided.
Fuel costs are treated differently. About seven in 10 firms expect to pass on less than half of higher fuel costs.
“Many businesses have been dealing with soft demand and weak sales. With customers holding back, most are absorbing higher fuel costs rather than risk losing sales,” said Simon Gaudreault, CFIB’s chief economist and vice-president of research. “At the same time, it’s no surprise that some firms are looking to adjust their prices, with tariffs and higher fuel costs hitting them from all sides.”
For advisors with business-owner clients, absorbed costs and uneven pass-through point to margin pressure that can affect cash flow, owner pay and expansion plans.
Trade, jobs and rates
Trade friction remains a driver. On Sept. 8, Canada imposed counter-tariffs of 15%, 25% and 50% on C$27.6 billion of US imports, according to the federal government. The US later banned imports of some Canadian dairy products and liquor, effective Sept. 29, The Canadian Press reported. CFIB’s September Business Barometer fell nearly 10 points to 47.9, with 62% of small firms citing fuel costs as a difficulty. Firms’ price plans averaged 3.3%, up from 2.6% in August.
The labour market is softening too. Statistics Canada reported the economy lost about 68,000 jobs in September after 42,000 in August, pushing unemployment to 6.5%, The Hub reported. Employment remains 95,000 above September 2025, and average hourly wages rose 2.3%. Inflation was 3.0% in August, with gasoline prices up 22.8% from a year earlier and prices excluding gasoline up 2.4%.
The Bank of Canada has held its key rate at 2.25% for about a year, with its next decision set for Oct. 28, The Canadian Press reported. Markets had been adding odds of a hike. After the August inflation report, Leslie Preston, managing director and senior economist at TD, said that “prior to today’s inflation reading, the 2-Year Government of Canada bond yield had risen over 40 basis points over the past month as markets moved to price in interest rate hikes from the Bank of Canada this year. We don’t think today’s inflation report supports this degree of tightening.” For advisors, the rate path bears on client borrowing costs and fixed-income positioning.
Gaudreault said the picture varies by firm. “This reflects an economy where businesses are faced with different realities and challenges, with some being impacted more by recent macroeconomic events and others still displaying resilience,” he said. “Aggregate data is currently masking a tale of mixed business fates, and there is still significant uncertainty about when the Canadian economy will be able to really rebound, following the latest episodes of this trade war.”
Statistics Canada is scheduled to release September inflation data Oct. 19.
