Employment data adds pressure on the BoC

Economic data released on Friday showed the jobs in Canada rose by 39,800 in May, surpassing expectations. Analysts at CIBC, consider that recent economic data means that the Bank of Canada could raise its interest rates a little higher.

Key Quotes:

“A further solid rise in employment, decline in the jobless rate and sharp acceleration in wage growth in May places more pressure on the Bank of Canada to continue raising interest rates aggressively”.

Employment rose by 40K, modestly ahead of the 27.5K expected by the consensus, which was enough to drive the unemployment rate down to a fresh record low of 5.1%. With wage growth now also accelerating, the Bank of Canada will feel increased pressure to continue raising interest rates to, and maybe now above, the mid-point of its neutral bound (2-3%).

“Continued solid momentum in the economy, combined with signals that inflationary pressures may be worsening rather than easing, means that the Bank of Canada could well raise interest rates a little higher than we had previously expected. We now see a peak of 2.75% (previously 2.5%) before the end of the year, although we still expect that growth and inflation will slow enough later in the year to prevent the Bank from having to take rates above the 3% upper bound of its neutral range.”