The Bank of Canada is expected to hold its key interest rate steady this week as inflation continues to slow, despite other data suggesting the economy is still running hot.
The central bank is set to announce its next interest rate decision on Wednesday. The announcement will be accompanied with updated economic projections for growth and inflation in its quarterly monetary policy report.
BMO chief economist Douglas Porter said although the economy is growing faster than anticipated, lower-than-expected inflation will convince the Bank of Canada to hold its key interest rate at 4.5 per cent.
“When we combine all these things together, it certainly looks like the (central) bank is likely to hold rates steady for now,” Porter said.
For months, the economic data that the Bank of Canada relies on for its interest rate decisions has been sending mixed signals on the state of the economy.
So far this year, growth and job numbers are coming in stronger than expected, even as the Bank of Canada’s key interest rate sits at its highest level since 2007.
After contracting slightly in December, real gross domestic product grew by 0.5 per cent in January. Statistics Canada’s preliminary estimate suggests the economy grew again in February by 0.3 per cent.
CIBC executive director of economics Karyne Charbonneau says a closer look at the economic growth numbers, however, shows that there may not be too much cause for concern.
“Some of the strength that we see in GDP seems to be the unwinding of some supply disruptions, which is actually a good thing for inflation,” Charbonneau said.
Meanwhile, businesses keep hiring. In March, the Canadian economy added 35,000 jobs, bringing the total number of jobs gained over the last six months to almost 350,000.
The unemployment rate also held steady at five per cent for the fourth consecutive month. That’s just above the all-time low of 4.9 per cent reached in the summer.
While this ongoing strength in the economy is not necessarily what the Bank of Canada wants to see, lower inflation is serving as good news.
In February, Canada’s annual inflation rate fell to 5.2 per cent, marking the second month in a row inflation came in lower than forecast. The slowdown in overall inflation comes as supply chains recover and commodity prices moderate.
The month-over-month inflation data shows inflation is actually tracking much closer to the Bank of Canada’s inflation target of two per cent.
Given the rapid rise in prices largely occurred in the first half of 2022, Canada’s inflation rate is expected to fall significantly in 2023, with most economists forecasting it will to fall to about three per cent by mid-year.
As long as inflation continues to fall as expected, the Bank of Canada doesn’t plan on raising interest rates further. It declared a conditional pause on rate hikes earlier this year, but kept the door open to more rate hikes if needed.
The Bank of Canada appears cautiously optimistic that its aggressive rate hikes between March 2022 and January 2023 — which saw its key interest rate rise from near zero to the highest it’s been since 2007 — will be forceful enough to quell inflation.
The effect of higher interest rates, which can take up to two years to be fully felt in the economy, is expected to continue broadening out in the economy and hamper growth.
Recent surveys conducted by the Bank of Canada also show consumers and businesses are gearing up for a slowdown. Consumers reported plans to cut back on travel and restaurant outings to save money. Meanwhile, businesses expect their sales to slow.
And although labour shortages were still a top concern for businesses, the survey found signs of both the labour market and wage growth easing.
“The survey results are actually showing that the interest rate hikes are working,” Charbonneau said.
“I think all of this is encouraging.”
This report by The Canadian Press was first published April 7, 2023.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
OTTAWA – The economy added 47,000 jobs in September, while the unemployment rate declined for the first time since January to 6.5 per cent, Statistics Canada reported on Friday.
The agency says youth and women aged 25 to 54 drove employment gains last month, while full-time employment saw its largest gain since May 2022.
The overall job gains followed four consecutive months of little change, the agency said.
The unemployment rate has been steadily climbing over the past year and a half, hitting 6.6 per cent in August.
Inflation that month was two per cent, the lowest level in more than three years as lower gas prices helped it hit the Bank of Canada’s inflation target.
The central bank has cut its key interest rate three times this year, and is widely expected to keep cutting as inflation has subsided and the broader trend points to a weakening in the labour market.
Despite the job gains in September, the employment rate was lower in the month, reflecting continued growth in Canada’s population.
Statistics Canada said since the employment rate saw its most recent peak at 62.4 per cent in January and February 2023, it’s been following a downward trend as population growth has outpaced employment growth.
On a year-over-year basis, employment was up by 1.5 per cent in September, while the population aged 15 and older in the Labour Force Survey grew 3.6 per cent.
The information, culture and recreation industry saw employment rise 2.6 per cent between August and September, after seven months of little change, Statistics Canada said, with the increase concentrated in Quebec.
The wholesale and retail trade industry saw its first increase since January at 0.8 per cent, while employment in professional, scientific and technical services was up 1.1 per cent.
Average hourly wages among employees rose 4.6 per cent year-over-year to $35.59, a slowdown from the five-per-cent increase in August.
The unemployment rate among Black and South Asian Canadians between 25 and 54 rose year-over-year in September and was significantly higher than the unemployment rate for people who were not racialized and not Indigenous.
Black Canadians in that age group saw their unemployment rate rise to 11 per cent last month while for South Asian Canadians it was 7.3 per cent. For non-racialized, non-Indigenous people, it rose to 4.4 per cent.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
