A modest economic growth forecast can conceal a difficult decision at the corner shop: raise prices and risk losing customers, or absorb rising costs and accept thinner profits. Canadian small businesses are confronting exactly that choice as U.S. tariffs and elevated fuel bills complicate the final months of 2026.
A new Canadian Federation of Independent Business forecast puts fourth-quarter economic growth at an annualized 1.4%, down from an estimated 2.0% in the third quarter. Meanwhile, 39% of surveyed businesses expect to increase prices by more than 3% over the coming year.
The numbers suggest an economy that is still expanding, but one in which business owners and households are finding less room to manoeuvre.
The 1.4% Forecast Signals a Slower Economy, Not a Recession
The Canadian Federation of Independent Business (CFIB) and forecasting partner AppEco expect gross domestic product to expand at a 1.4% annualized pace in the fourth quarter of 2026, compared with an estimated 2.0% in the third. The figures describe quarterly growth expressed as an annual rate, not the growth rate for the entire calendar year. They are forecasts, not final readings from Statistics Canada, and could change as new information becomes available.
The latest official monthly picture offers a reason for caution. Statistics Canada reported that real economic output was essentially unchanged in July, with construction gains offset by weakness elsewhere. For an owner deciding whether to add another employee or replace worn equipment, slower projected growth matters because it can mean fewer customers willing to spend. Yet 1.4% is still positive growth. It signals a softer expansion, not by itself a recession or proof that tariffs alone caused the slowdown.
Nearly Two in Five Businesses Are Preparing Price Increases Above 3%
The new CFIB report finds that 39% of surveyed businesses intend to raise prices by more than 3% over the next 12 months. That is a measure of pricing intentions, not a prediction that every Canadian household will face an identical increase. In September, CFIB’s separate Monthly Business Barometer found planned price increases averaging 3.3%, up from 2.6% in August. Taken together, the surveys point to mounting pressure on prices at the business level.
A bakery cannot always absorb a higher flour delivery bill, just as a repair shop cannot indefinitely ignore higher parts and shipping charges. But raising prices risks sending price-sensitive customers elsewhere. Some firms may adjust selectively, putting more of the increase on higher-cost products while trying to protect their most popular offerings. Others may wait until existing contracts expire. These decisions will determine how much of today’s business cost shock reaches shoppers over the next year.
Trump’s Tariffs Are Reaching Far Beyond Canadian Exporters
The United States imposed new 50% tariffs on approximately C$27.6 billion in Canadian goods in August. Ottawa responded with targeted counter-tariffs of 15%, 25% and 50% on a comparable value of American imports beginning September 8. The Canadian measures cover goods including steel, dairy products, appliances, agricultural equipment, pulp and paper, and electronics. These are targeted measures, not a universal 50% levy on everything crossing the border.
The effects spread through supply chains. A Canadian manufacturer may face weaker U.S. orders because its products are more expensive abroad, while a domestic retailer may pay more for imported inventory. A construction contractor purchasing affected materials can encounter higher invoices without exporting anything personally. Statistics Canada’s third-quarter survey found 32.2% of businesses expected negative effects from U.S. tariffs over the following 12 months. That is significant exposure, although most surveyed businesses did not predict such a direct negative impact. The indirect effects remain more difficult to measure.
Businesses Are Divided Over Who Pays the Tariff Bill
CFIB’s October assessment indicates that most affected firms expect customers to bear at least some tariff-related costs. Nearly 28% intend to pass through the full amount, while 18% have not yet settled on a pricing approach. An earlier CFIB trade-war survey captured that tension differently: 42% of respondents expected to absorb most of the new tariff costs, while 41% expected to pass through most. These results describe separate questions and survey periods, not a sudden change in one identical measure.
Statistics Canada provides another perspective. Its third-quarter Canadian Survey on Business Conditions found that 27.4% of businesses had already passed tariff-related cost increases to customers during the preceding year, while 34.9% said they had experienced no such increases. This distinction matters: a business can plan future price changes without having raised prices yet. Together, the findings show tariffs spreading unevenly across firms, suppliers and ultimately household budgets.
Rising Fuel Costs Are Squeezing Businesses From Every Direction
Gasoline and diesel prices affect far more than transport companies. Deliveries, farm equipment, building sites and mobile service businesses all depend on fuel, while higher freight expenses can be buried in the prices of food and supplies. CFIB’s September survey found that fuel costs were causing difficulty for 62% of small firms, slightly ahead of tax and regulatory costs at 61% and wage costs at 60%. Energy had become the most commonly cited direct cost constraint.
The pressure was visible earlier in the year. In a CFIB energy survey of 2,349 business owners, 69% reported higher overall energy costs, and the same proportion reported rising transportation-fuel costs. These findings reflect business responses, not a precise national fuel-price index. Still, they explain why even a profitable company may feel financially pinched. A firm cannot stop heating its premises or sending products to customers simply because energy bills rise. For smaller operators, reducing fuel consumption quickly may not be practical.
Many Owners Are Choosing Smaller Profits Over Lost Sales
Not all higher expenses reach the checkout immediately. CFIB’s October report finds that roughly seven in ten businesses expect to pass along less than half of their additional fuel costs. That means owners are absorbing much of the burden themselves, potentially through smaller profits, fewer upgrades or tighter cash reserves. The choice is rarely comfortable: increasing prices may protect margins today but weaken customer relationships that took years to build.
Demand is already a concern. In September, 49% of small firms surveyed by CFIB identified insufficient demand as an obstacle to growth. The Bank of Canada’s business survey likewise found that some companies could not pass through fuel and freight increases because of competition, fixed contracts and cautious customers. Picture a local delivery service negotiating with a restaurant: it may face higher diesel bills, but the restaurant has its own cost crisis. Both businesses can end up sharing the financial strain, leaving less money for employees and future expansion.
Inflation Is Holding Near 3% Even as Economic Growth Slows
Statistics Canada reported that consumer prices rose 3.0% from a year earlier in August, matching July’s inflation rate. Transportation prices increased 7.5% over 12 months, while food purchased from stores rose 2.8%. Those are measured changes in consumer prices, unlike the business price intentions in CFIB’s survey. Some planned increases may never happen, while others may emerge gradually as companies renew supplier contracts or adjust menus and service fees.
CFIB and AppEco forecast consumer inflation of 3.0% in the third quarter and 2.9% in the fourth. That is only a slight easing and remains above the Bank of Canada’s 2% target. It also illustrates an uncomfortable combination: weaker growth alongside stubborn costs. Households may already be comparing grocery prices more carefully or postponing discretionary purchases. Such restraint limits how readily businesses can raise prices, even as it makes their sales prospects weaker. The pressure works in both directions.
Small Business Confidence Has Fallen Below a Critical Threshold
September brought a sharp decline in CFIB’s long-term small-business optimism index to 47.9, nearly ten points below the previous month. Its shorter three-month outlook slipped to 43.3. On this scale, a reading below 50 means more responding owners expect weaker performance than stronger performance. The index is a sentiment measure rather than a direct forecast of GDP, but it captures the hesitation behind investment, hiring and pricing decisions.
The trade divide is revealing. CFIB measured exporters’ confidence at 38.6 and importers’ at 43.5, both weaker than the outlook for businesses focused on domestic customers. Uncertain tariffs can make it difficult to quote prices months ahead or sign long contracts with suppliers. Even businesses escaping direct duties may delay a purchase because they worry about demand. For small employers, confidence often shows up in quiet actions: putting off another vehicle, postponing renovation or leaving a vacant role unfilled until the economic picture becomes clearer.
Private Investment Could Lose Momentum Before the Year Ends
CFIB’s latest estimates suggest private investment growth of 5.2% in the third quarter, slowing to 1.6% in the fourth. Both numbers are positive, so the prediction is not that businesses as a whole will stop investing. It is that the pace of new spending may cool substantially. For a small manufacturer, that could mean keeping an older machine running instead of committing to a costly replacement while export orders remain uncertain.
The wider business landscape is not uniform. The Bank of Canada’s July Business Outlook Survey found that some firms still had strong investment intentions, supported by commodity prices, public infrastructure spending and productivity improvements. Others were holding back because demand looked soft. The difference illustrates why national averages can mislead: an energy supplier with a growing order book may be buying equipment, while a customer-facing business in another province is deciding whether it can afford repairs at all. Investment decisions made today will influence productivity and competitiveness long after current tariffs change.
September’s Job Losses Add Another Warning Sign
Canada lost about 68,000 jobs in September, according to Statistics Canada, following a drop of about 42,000 in August. The unemployment rate edged up to 6.5%, and the latest monthly decline included manufacturing, education and health care. These figures do not establish that tariffs caused every lost position, but they matter for customer confidence. Households worried about employment often become more selective about renovations, travel and other purchases.
Small employers are also cautious. CFIB’s September survey found 16% planned to reduce full-time staffing, compared with 13% intending to hire. Meanwhile, its latest quarterly estimate put the private-sector vacancy rate at 2.6%, representing roughly 375,000 unfilled positions. Vacancies can coexist with layoffs when skills, locations or wages do not match. For business owners, the challenge is double-sided: fewer sales can reduce staffing needs today, even while finding the right experienced employee remains difficult. That mismatch complicates hiring decisions across the country.
Agriculture, Manufacturing and Retail Face Different Pressures
The slowdown is not hitting every industry in the same way. CFIB’s September three-month moving averages put agriculture’s confidence index at just 37.8, compared with 52.1 for manufacturing and 52.5 for construction. Financial, insurance and real estate firms recorded 66.2, while professional services stood at 59.7. These figures capture differing business expectations, not a ranking of each industry’s current profitability.
Statistics Canada’s earlier third-quarter survey likewise showed uneven pricing intentions. More than one-third of accommodation and food services businesses expected higher selling prices over the following three months, compared with 29.6% of wholesalers and 27.8% of retailers. The surveys cover different samples and time frames, so their percentages are not directly interchangeable. Together, they suggest restaurants, suppliers and storefronts may respond differently to the same economic shock. A fuel-intensive farm faces challenges quite unlike an office-based consulting firm with few physical deliveries. That variation helps explain why recovery may arrive at different speeds.
Ottawa’s Relief Measures Face a Difficult Test
Ottawa has responded to the energy shock by extending its temporary federal fuel-excise-tax suspension through January 31, 2027, with half rates scheduled for February and March. The suspended tax ordinarily amounts to ten cents per litre on gasoline and four cents on diesel. The government also announced a C$7.5-billion package of new and enhanced support measures in response to the latest U.S. tariffs. These policies may soften costs, but cannot guarantee a return to stronger demand.
The Bank of Canada held its policy rate at 2.25% in September, pointing to heightened inflation risks and trade uncertainty. Its next scheduled rate decision is October 28, while Statistics Canada’s September inflation report is due October 19. Neither release can resolve the trade dispute, but both could clarify how much of the cost shock is entering consumer prices. For small businesses, the recovery will feel real when customers return and budgets can stretch without constant price increases. Until then, surviving the squeeze remains a challenge.
