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July 7 (UPI) — Just like the U.S. economy, the Canadian labor market is proving resilient against inflationary pressures, which could lead the Bank of Canada to raise its lending rates again next month, according to analysis by investment bank ING.
The Bank of Canada had refrained from raising its lending rate for five months, but in a surprising move in June, it increased the rate by 25 basis points, citing the persistent imbalance between supply and demand.
“Reflecting our view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target, the Governing Council decided to increase the policy interest rate,” the Bank of Canada stated at the time.
Labor is becoming a growing concern as new hires further incentivize demand and support a higher level of inflation. Market data released on Friday revealed that the Canadian economy added 60,000 jobs last month, which was three times higher than expected.
“To restart hiking lending rates after a five-month break suggests that the Bank of Canada feels it hasn’t done enough to ensure a sustainable return of inflation to the 2% target,” said James Knightly, the chief economist, and Francesco Pesole, a currency strategist, in a joint report. “To us, this means the odds certainly favor at least one additional move, and we see little reason for them to wait — hence our call for a 25 basis-point hike on July 12.”
The case for another rate increase is further supported in Alberta, an oil-rich province that was previously affected by wildfires earlier this year. Economy and Trade Minister Matt Jones stated that his province serves as the hub of Canada’s labor market.
“Alberta continues to be the economic and job creation engine of Canada with our highly skilled workforce, business-friendly policies, diversified economy, and affordable and exceptional lifestyle,” he added.
Canada’s gross domestic product remained flat in April, the latest available data, with preliminary estimates for May indicating a month-on-month expansion of 0.4%. Both headline inflation and core inflation, which excludes volatile food and energy prices, remain approximately 2% above the target.
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