Everything indicates that inflation and the labor market have moved in the right direction for the central bank in recent months, according to Statistics Canada’s monthly update, which tracks year-over-year price growth in several key sectors. However inflation remains high.
Price increases over the past year have prompted the central bank to initiate a series of interest rate hikes since last March in an effort to slow the economy and cool consumer spending.
The strategy has been largely successful, with inflation falling nearly 4% from a 39-year high last summer to a previous reading, but continued labor market resilience could be a sign that the economy is growing faster than the bank had anticipated. I am running at a fast pace. Canadian.
More than 41,000 jobs were added to Canada’s economy in April, more than double the number expected by market observers.
This is potentially significant as the central bank has made it clear in recent interest rate announcements that although it is prepared to keep rates where they are now, it may cut rates if economic trends do not turn out as expected. And ready to expand as well.
According to many economists, the Canadian and US labor markets have proved to be very resilient in some ways, and are much stronger than the recent tightening of monetary policy.
With unemployment hovering near a record low in Canada, annual wage growth has been slightly above normal. Canada’s unemployment rate has been at 5% since December, a record low.
The year-over-year wage increase, at about 4%, is certainly higher than what you would see in a low-inflation environment, when wages increase by 2.5-3%.
While rising wages aren’t having much of an impact on inflation, a still-tight labor market is complicating things somewhat, and the Bank of Canada expects further easing and a decline in hiring.
In statements accompanying its recent interest rate decisions, the central bank has said it expects headline inflation to fall to 3% by the middle of this year, before returning to its benchmark target rate of 2% in 2024.
Which way will the Bank of Canada take on interest rates in the coming months? A rate cut is certainly on the cards, although they are not imminent.
There are a number of economic factors working against them that can influence interest rate decisions by the central bank, especially in the mortgage market, where many borrowers are going to renew their mortgages with interest rates higher than when they rent. was taken.
Nothing is certain, but it is not something to think that there is scope for some fall in interest rates by the end of this year.
The next announcement from the Bank of Canada will be on June 7. The referenced interest rate is expected to remain at its current value of 4.25%.