Canadian Small Firms Trimmed Pay and Hiring Plans Before the Bank of Canada's First Rate Hike Since 2023

In a CFIB survey taken October 1 to 8, weeks before the rate decision, small Canadian employers had already trimmed their wage plans for the next year and their hiring plans for the next few months. Owners' planned wage increases decreased slightly, and more of them planned to lay off full-time staff than to hire, the weakest net staffing intentions since the pandemic. Then, on October 28, the Bank of Canada raised its target for the overnight rate. Canadian organizations surveyed this summer by Normandin Beaudry had budgeted 2027 raises matching what they granted in 2026, and those budgets also predate the hike. For Metaintro readers working in Canada or hunting for a job there, this guide sets out what the rate decision means, which employers are cutting back, what raise to expect in 2027, and where hiring is still happening.

What Did the Bank of Canada Decide on October 28?

The Bank of Canada increased its target for the overnight rate by 25 basis points to 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.45%. It is the first interest rate increase since July 2023. Before this move, the rate had sat at 2.25 percent at every announcement from January 28 to September 2, 2026.

Governing Council raised the rate to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services. Governing Council considered two policy options: hold or hike. The main case for holding was that the rise in inflation had so far been concentrated in energy prices and in services that rely heavily on energy inputs, such as airfares.

The bank warned there could be a need to increase the policy rate further, though the council agreed to proceed carefully. The next scheduled rate announcement is December 9, 2026, and the next Monetary Policy Report will be released on January 27, 2027.

With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation, Governor Tiff Macklem said in his opening statement, according to the Bank of Canada opening statement.

How Much Higher Will Prices Run Next Year?

CPI inflation has been around 3% since April and is expected to rise to about 3½% by the end of the year. Excluding gasoline, inflation was 2.2% in September, and measures of core inflation remain close to 2%.

For 2027, the bank expects CPI inflation to average 3%, a percentage point above the July projection, before it comes down to 2% in the middle of 2028. In the October forecast, inflation remains above 3% through much of 2027 and then eases gradually because energy and import cost pressures take time to pass through.

The economy is expected to grow 1% in 2026, and 2% in 2027 and 2028, a somewhat stronger projection than in July. The bank also expects growth to slow in the fourth quarter of 2026 because of new US tariffs, before picking up again in 2027.

How Have Small Businesses Cut Their Pay and Hiring Plans?

The clearest trim comes from the Canadian Federation of Independent Business monthly Business Barometer. In September, small firms' average wage increase plans remained unchanged at 2.4%. By October, the average wage increase decreased slightly to 2.2%.

Hiring plans moved the same way. In September, a higher share of employers planned to lay off staff (16%) than to hire (13%). In October, full-time staffing plans weakened further, with 22% planning layoffs against 11% planning to hire.

Timing matters here. The October barometer is based on 301 responses received from October 01 - 08, so small firms trimmed these plans before the rate decision, not because of it.

Insufficient demand remains the top constraint to business and production expansion, named by 50% of SMEs, followed by the shortage of skilled labour at 43%. Fuel costs ranked as the top cost constraint again, yet businesses expect to pass on only about one-fifth (21%) of the higher costs through price increases.

Are Canadian Organizations Cutting Their 2027 Salary Budgets?

Not in the summer surveys. The Normandin Beaudry salary survey, now in its 16th edition, drew responses from more than 800 organizations across Canada this summer. Employers in that survey expect to raise salaries by an average of 3.1 percent in 2027, excluding salary freezes, matching what they granted in 2026. That 2026 result came in above the 3.0 percent Normandin Beaudry projected in January 2026.

Only 1.7 percent of respondents froze salaries last year, while 3.6 percent of respondents project a freeze for 2027. Counting additional discretionary budgets, average total salary increases for 2027 are expected to reach 3.3 percent. Roughly 46 percent of responding organizations allocated an average additional budget of 0.9 percent in 2026, and the same share plans the same 0.9 percent average for 2027. Uses for those extra budgets include market reviews of salaries, differentiating compensation for high-performing talent, retaining employees in strategic and essential positions, and accelerating the progression of employees who are at the bottom of the salary scale.

These budgets, from a survey taken this summer, came before the hike. Surveyed organizations were taking a cautious approach pending the finalization of budgets in the fall and winter of 2027. Salary increases have been trending back toward pre-pandemic levels since 2025, and the 2027 projections indicate alignment with 2026 budgets despite economic, trade and geo-political uncertainties, said Darcy Clark, senior principal, compensation, talent and culture at Normandin Beaudry.

A second survey, the Mercer Canada compensation survey, covered more than 470 Canadian organizations and found employers plan to hold merit increases nearly the same as in the last two years. As of July 2026, 89 percent of organizations were still collecting information for 2027 salary budgets, while six percent had proposed budgets to leadership and five percent had already secured approval. Mercer's July snapshot came before the October decision, and 60 percent expect at least a moderate impact from the economy on their compensation decisions.

Which Sectors and Employers Plan the Biggest Raises?

The spread is narrow, but it is there. Telecommunications, data processing, data warehousing and related services, and finance and insurance lead at 3.4 percent in the Normandin Beaudry survey. Real estate, rental and leasing, technology, and construction follow at 3.3 percent, with professional, scientific and technological services at 3.2 percent.

Who owns the employer matters a little. Privately held organizations project 3.2 percent, publicly traded organizations 3.1 percent, not-for-profits 3.0 percent, and government or Crown corporations 2.9 percent.

A second survey ranks the sectors differently. Mercer found tech leading market increases for merit and total increases, while banking or financial services budgeted the smallest increases so far. The two firms use different samples and categories, so a bank worker should not expect the finance figure from one survey to match the other.

Pay ranges themselves are moving slowly. Projected salary structure increases for 2027 average 2.5 percent excluding freezes, below the average salary increase budget in the same survey.

Will a Typical Raise Keep Up With Prices?

Barely, if the forecasts hold. The summer salary budgets sit just above the bank's 2027 inflation forecast set out above, and against that forecast they point to little or no real wage growth in 2027, the HRD Canada analysis found.

Workers are already a step behind. Average hourly wages among employees rose 2.3% to C$37.64 (about US$26.85) on a year-over-year basis in September, while CPI inflation reached 3.1%, Statistics Canada data cited in the HRD Canada report shows.

CFIB's figure for small firms measures something different. CFIB asks owners how much they expect average wages to change in the next year, while Normandin Beaudry measures salary increase budgets excluding freezes, so the two figures are not directly comparable.

What Does the Bank's Own Business Survey Say About Hiring?

The Bank of Canada runs its own quarterly survey of senior managers at about 100 firms, and the third-quarter round ran from August 6 to September 2, 2026. Businesses' employment intentions remain soft and below their historical average, even as sales outlooks improved.

Several firms are counting on automation instead of new staff. They expect automation and other efficiency improvements to raise productivity, allowing them to meet increases in sales without adding workers. Firms planning to grow their workforces generally saw improved demand, often linked to public spending or natural resources.

Wage expectations in the same survey have barely moved. Firms' expectations for wage growth have been roughly unchanged since mid-2024 and remain near the historical average, and cost-of-living adjustments are the main factor supporting them. One-tenth of firms, a larger share than in recent quarters, pointed to efforts to attract and retain workers as a source of upward pressure on expected wage growth.

Most firms anticipate keeping staffing levels unchanged, often commenting that current levels are sufficient to meet expected demand, according to the Bank of Canada Business Outlook Survey.

Where Are Skills Still in Short Supply?

Not every employer is cutting. Labour shortages in the bank's survey were mostly concentrated in skilled trades and specialized technical positions, and firms often linked them to structural issues such as difficulties recruiting workers in rural areas. For a larger share of firms than last quarter, finding labour was more difficult than a year earlier, although binding shortages remain below historical levels.

Small firms see the same gap, ranking the shortage of skilled labour second among their limits on growth in October.

Health care and social assistance fell by 23,000 in September, its first monthly drop since December 2022, but was still up by 93,000 (+3.2%) over 12 months and the largest contributor to employment growth over that period. Employment in other services, which includes repair and maintenance, was up by 32,000 (+4.1%) compared with September 2025.

How Weak Is the Job Market Going Into the Rate Hike?

The labour market was soft before the decision. Employment declined by 68,000 in September, a drop broken down by industry in our September jobs analysis, and the unemployment rate increased 0.1 percentage points to 6.5%. That followed a decrease in August of 42,000.

Finding a job is taking longer. The job-finding rate was 30.6% in September, down from 32.8% 12 months earlier, and below the average of 36.5% from 2017 to 2019. That rate measures how many people unemployed in August had found a job in September.

The public and private sectors are heading in different directions. The number of public sector employees declined by 70,000 in September, the fourth monthly decline in a row. Private sector employees were little changed in the month but up by 163,000 (+1.2%) compared with 12 months earlier.

Employment among youth aged 15 to 24 fell for a second consecutive month in September, and the youth unemployment rate was little changed at 13.0%. Among young adults aged 25 to 34 with a bachelor's degree or higher, close to 7 in 10 (69%) were employed in permanent, full-time positions in 2025, and their average hourly wage was C$39.18 (about US$27.95).

What This Means for Job Seekers, and What Should You Do Next?

If you are weighing offers, ask each employer what its merit budget for next year is, not only what the starting salary is.

Use the sector figures above in your next pay talk. Most organizations had not yet secured approval for their budgets in July, and organizations in the Normandin Beaudry survey were waiting to finalize budgets in the fall and winter of 2027, so ask for a raise before your manager's number is locked.

Point your search at the areas where firms report shortages or plan to hire. In the Bank of Canada survey, shortages centred on skilled trades and specialized technical positions, and firms planning to expand their workforces generally saw improved demand.

Lacey Kaelani, Metaintro's CEO, puts it this way: When budgets get tight, raises go first to people who are hard to replace. Put a number on what you saved or fixed this year before your review, and you give your manager a reason to fight for you.

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People Also Asked

Q: Did the Bank of Canada raise interest rates in October 2026?

A: Yes. On October 28 the bank raised its target for the overnight rate.

Q: What is the average salary increase in Canada for 2027?

A: A Normandin Beaudry survey, taken this summer before the rate hike, projects average 2027 raises matching the increases granted in 2026. The salary budget section above gives the figures.

Q: Are Canadian small businesses hiring?

A: Fewer are. In a survey taken October 1 to 8, more small employers planned to lay off full-time staff than to hire.

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