July 7 (UPI) — As with the U.S. economy, a labor market that’s been resilient to inflationary pressures may cause the Bank of Canada to raise its lending rates again next month, analysis from investment bank ING found.
The Bank of Canada had not raised its lending rate for five months. But in June, it surprised the market with an increase of 25 basis points after policymakers said supply and demand still were out of balance.
“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,” it said at the time.
Labor is a growing concern, meanwhile, as new hires incentivize demand further and support a higher level of inflation. Market data from Friday showed the Canadian economy added 60,000 jobs last month, three times higher than expected.
“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,” 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.”
Meanwhile, the case was strengthened in Alberta, an oil-rich province plagued by wildfires earlier this year, when Economy and Trade Minister Matt Jones said his province is 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 was flat in April, the last full month for which data are available, and snap estimates for May hint at a 0.4% month-on-month expansion. Both headline inflation and core inflation, which strips out volatile food and energy prices, remain about 2% above target.
