Inflation, labour costs top of mind for Canadian employers: StatCan
Despite rising costs and trade challenges, Canadian business sentiment remains resilient, according to Statistics Canada (StatCan).
Overall, 66.8% of businesses are optimistic about their outlook over the next 12 months, a proportion similar to levels seen in previous quarters.
Sales expectations are showing modest improvement. Nearly 1 in 5 (19.4%) businesses anticipate growth in the next quarter, up from 17.9% in the first quarter. At the same time, 25.2% of businesses expect the selling price of their goods or services to increase, reflecting ongoing cost pressures.
Accommodation and food services (42.0%), retail trade (39.7%), and wholesale trade (39.5%) were most likely to expect price increases, underscoring challenges in consumer-facing industries.
Challenges ahead for employers
While optimism remains steady, businesses continue to face significant cost-related obstacles. StatCan said that 64.3% of businesses expect cost-related challenges over the next three months, up from 58.9% in the first quarter.
“Nearly half (48.8%) of businesses expect inflation to be an obstacle,” the report noted, with accommodation and food services (65.9%), retail trade (60.0%), and manufacturing (58.2%) most affected. Inflation was identified as the single most common challenge across industries.
The cost of inputs—including labour, raw materials, and energy—was the second most frequently cited obstacle, with 28.4% of businesses expecting difficulties. Agriculture, forestry, fishing and hunting reported the highest concern at 60.0%, followed by manufacturing at 48.1% and accommodation and food services at 43.1%.
Wage growth is adding to the pressure. Average hourly wages rose 4.5% year over year in April, following a 4.7% increase in March. At the same time, the Raw Materials Price Index showed a 2.6% month-over-month increase in April and a 31.6% rise compared with the previous year, underscoring the scale of input cost challenges.
Rising payroll expenses, combined with inflation and surging material costs, are expected to weigh heavily on business operations in the coming quarter.
“Businesses continue to anticipate a variety of obstacles over the next three months, while pressures of both cost- and labour-related obstacles persisted into the second quarter,” StatCan said.
Canada’s annual inflation rate accelerated in April as surging energy costs pushed the Consumer Price Index (CPI) up 2.8% year over year, StatCan previously reported.
Tariff concerns and trade uncertainty
Trade tensions with the United States remain a concern. StatCan reported that 34.0% of businesses expect U.S. tariffs on Canadian imports to negatively impact operations over the next 12 months. Manufacturing (54.0%), wholesale trade (47.1%), and agriculture (46.3%) were most likely to report concern.
The agency added, “Over one-quarter (28.3%) of businesses reported having passed cost increases due to tariffs onto their customers over the 12 months prior to the survey.” Nearly two-fifths (38.4%) did not pass on costs, while one-third (33.3%) said they did not experience tariff-related increases.
Looking ahead, just over one-third (33.8%) of businesses said they are likely to pass future tariff-related cost increases onto customers. However, 35.3% indicated they do not expect to do so, as they anticipate no additional tariff-related costs.
AI adoption is rising
Technology adoption is reshaping operations across industries. StatCan said that 19.2% of businesses used artificial intelligence (AI) to produce goods or deliver services in the past year, up sharply from 6.1% in 2024.
The most common applications were data analytics (36.6%), text analytics (34.5%), and virtual agents or chatbots (28.2%). Businesses cited barriers to adoption, including lack of relevance (40.0%), cybersecurity or privacy concerns (13.4%), and costs (10.6%).
The rapid growth in AI use highlights a significant shift in business practices, with firms increasingly leveraging technology to improve efficiency and customer engagement.
Address inflation and labour costs woes
Here how Canadian employers can address rising inflation and labour costs:
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Strategy |
Rationale |
Key evidence |
Source |
|
Invest in productivity & technology |
Automation and capital investment are the most consistently recommended ways to offset rising unit labour costs and restore competitiveness. |
Over 10 years, corporate productivity rose just 3.2% while unit labour costs jumped 32%. Some industries have not sufficiently adopted capital investment or automation to address workforce needs. |
C.D. Howe Institute, 2024 Labour Market Review BDC Monthly Economic Letter, Sept. 2025 |
|
Embrace AI thoughtfully |
AI can help manage labour costs without large-scale headcount reductions, but demands upskilling as routine tasks are automated. |
In Q3 2025, 70% of businesses planning AI implementation expected no change in employment. Among those already using AI, 89.4% reported no change in employment levels. Entry-level roles now demand higher skills as AI takes on routine tasks. |
C.D. Howe Institute, 2025 Labour Market Review C.D. Howe Institute, Apr. 2026 |
|
Upskill & reskill the workforce |
Closing skills gaps boosts productivity per hour worked, reducing the need for additional hires to achieve the same output. |
Canada stands below top-performing countries in skills development with no comprehensive lifelong learning strategy. Employers are advised to provide on-the-job training, recognise non-formal learning, and offer higher wages to attract digital talent. |
C.D. Howe Institute, Aug. 2022 C.D. Howe Institute — Upskilling Report |
|
Tie compensation to performance |
Linking pay to productivity metrics rather than applying across-the-board increases helps contain costs while retaining and motivating talent. |
Employee productivity is a top priority for 75% of Canadian employers in 2025. Employers are increasingly linking total rewards to metrics such as revenue growth, sales performance, and performance ratings. |
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Manage benefits costs strategically |
Healthcare and benefits represent a significant and growing portion of total compensation; reviewing and restructuring benefits programmes can yield meaningful savings. |
67% of companies are implementing measures to reduce medical benefits costs. 40% of Canadian firms plan significant changes to their benefits programmes. |
Currently, Canadian employers are expanding climate planning in ways that will reshape workforce strategy, policies and skills, according to research from the BMO Financial Group.
