Canadian businesses are navigating a tangle of cost pressures this fall, as surging diesel prices, a renewed tariff dispute with the United States and energy-driven global inflation combine to squeeze margins and cloud the outlook for the Bank of Canada.
Diesel prices have climbed sharply across the country, moving from about $1.86 per litre in June to roughly $2.65 in recent weeks before easing slightly to just below $2.60, according to Patrick De Haan, head of petroleum analysis at GasBuddy. He attributed the jump to a mix of global factors, including geopolitical tensions between the United States and Iran, restrictions through the Strait of Hormuz, reduced refinery output in China, and Ukrainian attacks on Russian oil refineries.
Because diesel underpins much of Canada’s supply chain — from harvesting crops to moving goods by truck and rail — De Haan said the effects extend far beyond drivers who fill up at the pump. “The epicentre of the diesel impact will be at your grocery store, every aisle to be impacted,” he said, adding that restaurants, online retail and other goods are also exposed.
For Evelyne Nyairo, founder of Calgary-based skincare company Ellie Bianca, the higher transportation costs are hitting at every stage of production. “The impact includes ingredients coming in, packaging, labels. It is all the raw materials that we need before we can make our products,” she said, noting shipping costs out to customers compound the problem. Rather than raise prices further, the company has cut staff hours. Nyairo said tariffs have already cost her business a significant share of its U.S. online sales, layering onto years of rising shipping costs. “It is extremely challenging to keep growing in Canada, to keep hiring in Canada, to actually manufacture in Canada,” she said.
Tariff Dispute Weighs on Confidence
The diesel squeeze comes alongside a reignited trade dispute with Washington. The United States imposed 50 per cent tariffs on roughly $28 billion worth of Canadian goods on Aug. 22, prompting retaliatory tariffs from Ottawa and planned import bans from the U.S. Deliberations released by the Bank of Canada show policymakers worried the escalating dispute could chill household spending, business investment and hiring, even as the economy and labour market had been showing signs of strength heading into the latest tariff wave.
The central bank held its key policy rate at 2.25 per cent on Sept. 2 — its seventh consecutive hold — while flagging that “businesses’ ongoing efforts to adapt to tariffs and trade uncertainty” could only partly offset the uncertainty. Policymakers did not view Canada’s own counter-tariffs as a major inflation risk, since they largely target intermediate inputs like steel that have Canadian substitutes, meaning any price impact would likely be “muted and spread out over time.”
Grocery Bills Mostly Spared, For Now
Economists say Canada’s reciprocal tariffs, which took effect in September and range from 15 to 50 per cent, are unlikely to drive major food inflation. KPMG chief economist Ali Jaffery said the retaliatory measures are “not focused on food inflation,” with only about 20 per cent of affected items being consumer products. Loblaw CEO Per Bank said the current round of tariffs affects roughly half as many products as last year’s dispute and “very few food products,” though he warned some categories — notably health and beauty items such as fragrance, makeup and hair styling products, along with paper goods — could face tariffs as high as 50 per cent.
Desjardins principal economist Florence Jean-Jacobs said the narrower scope of the tariffs should help grocery retailers and food service operators avoid squeezed margins, and noted a drop in Canadian exports to the U.S. could even boost domestic supply of some goods.
Key Cost Pressures Facing Canadian Businesses
Energy Costs and Regional Divergence
Global food giant Nestle has also flagged energy and freight costs tied to the Middle East conflict as a source of inflation for its suppliers, even though the war’s direct impact on sales has been limited. CEO Philipp Navratil said the company is raising prices, reformulating products and cutting items consumers are unwilling to pay more for in response. The UN Food and Agriculture Organization’s Food Price Index reached its highest reading since January 2023 in July, which Nestle said points to broader global food inflation pressure.
Within Canada, the impact of these pressures is uneven. Bank of Canada governor Tiff Macklem said Atlantic Canada is less exposed to U.S. tariffs than provinces like Quebec and Ontario, though he said inflation is “stinging more” there, particularly because of rising oil prices affecting residents who heat homes with furnace oil. Macklem pointed to unemployment in Nova Scotia running below the national average and highlighted investment opportunities in shipbuilding, defence and energy, while cautioning that sustained government and business investment would be needed over multiple years.
The Bank of Canada is watching closely for signs that high gasoline and diesel prices begin spreading into broader goods and services. Policymakers noted in their September deliberations that while there was “little evidence thus far” of such pass-through, the longer energy prices stay elevated, the greater the risk to the inflation outlook — a dynamic that will factor into the bank’s next rate decision on Oct. 28.
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