Yu: Small business confidence steadies as B.C. inflation cools sharply

Cautious optimism

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In B.C., confidence fell back after a surprise surge in December.

Small business confidence was roughly unchanged in January, according to the latest readings from the Canadian Federation of Independent Business.

The Canadian 12-month outlook remained unchanged at 59.5 points (a value above 50 indicates net business optimism). This was highest level since November 2024 and suggests businesses are cautiously upbeat about the year ahead, but levels remain relatively low given slow economic growth and trade uncertainty.

On a shorter three-month basis, businesses remain relatively pessimistic with an index value of 52.8 points after holding below 50 for the prior 12 months. Segments such as professional and business services (64.9 points), and health and education (61.3 points) are more optimistic, with a low in manufacturing (53 points).

This is not entirely surprising given ongoing trade risk impacting the latter, while greater optimism in the former could reflect increased AI adoption. Manitoba (65.1) and New Brunswick (63.3) recorded the highest index readings. Firms generally view the current business environment as satisfactory, with wage growth at 2.1 per cent over the next year and 2.6 per cent price growth.

In B.C., confidence fell back after a surprise surge in December. This was to be expected given much lower readings over the prior six to nine months. The index declined from 67.4 points to 56.7 points but held above levels seen in the summer and fall months, pointing to some improvement in sentiment. Short-term expectations fell back into negative territory at 46.3 points from 57.1 in December. On full-time staffing, B.C. firms remain downbeat with 12 per cent looking to hire, and 16 per cent looking to cut. Demand remains a key constraint to increasing production.

B.C. inflation declined sharply in December to 1.7 per cent year over year, which was down from two per cent in November, and compared to a 2.4 per cent national reading. This was the lowest rate in the country and B.C. was the only province to record a slower pace of inflation than the prior month.

While base year effects of the temporary GST/HST exemptions in 2024 contributed to upward pressure across the country, B.C. shook off upside pressure. Hospitality/accommodation costs fell sharply by 34 per cent after a Taylor Swift concert-induced surge in December 2024. Inflation excluding energy also declined from 2.5 per cent to 2.2 per cent while excluding both food and energy, it declined to 1.7 per cent from 2.1 per cent.

Food price inflation remains a key driver of consumer price growth in the province, rising by 5.2 per cent year-on-year in December following an increase of 4.2 per cent in November. Groceries like meat increased in price by 6.8 per cent while fish and seafood prices rose by 8.9 per cent during the period. Coffee accelerated from 23 per cent to 32 per cent.

The price of food purchased at restaurants also increased by 6.1 per cent.

In B.C., energy prices have continued to fall since March, down 9.2 per cent year-over-year in December, and an accelerated decline from the 5.8 per cent drop in the previous month. Gasoline prices fell 13.7 per cent compared to 8.3 per cent dip in November. Crude oil prices have fallen to a four-year low given continued oversupply in global markets, among other factors. Transportation costs, which tend to be affected by gasoline prices, decreased by 0.4 per cent.

Shelter costs increased 1.9 per cent year over year, down marginally from two per cent in November. Rented accommodation costs were up 3.3 per cent from 2.9 per cent, while owned accommodation prices fell to 1.5 per cent from 1.8 per cent. Homeowners’ replacement cost declined by 1.2 per cent, reflecting declining home values recently.

Clothing and footwear prices declined by 0.5 per cent while household operations, furnishings and equipment inflation accelerated from 2.9 per cent to 3.4 per cent. Growth in the price of goods slowed in December to 1.2 per cent from 1.7 per cent year-over-year in November. Service prices growth fell to 2.0 per cent, down from 2.3 per cent.

Bryan Yu is chief economist at Central 1

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.