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July 7 (UPI) — An analysis from investment bank ING indicates that, similar to the U.S. economy, the Canadian labor market’s resilience to inflationary pressures may prompt the Bank of Canada to raise its lending rates again next month.
After maintaining its lending rate for five months, the Bank of Canada surprised the market in June with a 25 basis point increase, citing an ongoing imbalance between supply and demand as the reason.
“The Governing Council decided to increase the policy interest rate, 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 bank stated at the time.
Increasing concerns over labor have been raised as new hires contribute to further demand and support a higher level of inflation. Recent market data revealed that the Canadian economy added 60,000 jobs last month, surpassing expectations by three-fold.
“To restart hiking after a five-month break suggests the Bank of Canada feels it hasn’t done enough to be certain that inflation will return sustainably to the 2% target,” commented 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.”
Furthermore, this case was strengthened in Alberta, an oil-rich province that faced wildfires earlier this year, when Economy and Trade Minister Matt Jones highlighted the province as the heart 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,” Jones added.
In April, Canada’s gross domestic product remained unchanged based on available data, while preliminary estimates for May suggest a 0.4% month-on-month expansion. Both headline inflation and core inflation, which excludes volatile food and energy prices, continue to hover around 2% above the target.
