​Economists expect continued rate hikes despite weak jobs data

Wage growth will make it difficult for the Bank of Canada to squeeze out inflation: Analyst

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Canada’s economy is showing some signs of cooling as employment declined for the second month in a row, the latest data revealed on Friday.

The country shed 30,600 jobs in July, according to Statistics Canada’s labor force survey, while unemployment remained at a historical low of 4.9 percent.

Despite the economic weakness, Bay Street economists are expecting increased rate hikes to come from the country’s central bank in an effort to tame multi-decade high inflation.

Here’s what some prominent Bay Street economists are anticipating from the country’s central bank in light of the latest jobs report.

Douglas Porter, chief economist, BMO Capital Markets

“For the Bank of Canada, the takeaway will be that while growth is clearly cooling, conditions remain drum-tight and wages are stirring. We believe this backdrop is consistent with another rate hike at the September meeting, but of a less aggressive nature than the mega 100 bp move in July. We look for a 50 bp hike at that time.”

Rishi Sondhi, economist, TD Bank

“Although the jobs market and underlying economic growth is softening, the Bank of Canada remains determined to rein in sky-high inflation and keep expectations anchored. As such, we expect them to take their policy rate above neutral, with it ending the year at 3.25 percent.”

Carrie Freestone, economist, RBC

“In the months ahead we will begin to see the economy lose steam. We are already observing jobless claims rising south of the border, as US labor demand begins to cool. Canada will not be far behind. With the Bank of Canada having raised the overnight rate by 225 basis points (to 2.5 per cent) since March, and at least another 75 basis points slated for the fall, inflation pressures will ease. And labor markets are expected to cool. Our forecast calls for the unemployment rate to begin to trend higher in the coming months and into 2023.”

Stephen Brown, senior Canadian economist, Capital Economics

“With employment falling, policymakers at the Bank will have a harder time shrugging off the weakness in GDP than their peers in the US, where employment growth is strong. As the unemployment rate was unchanged at its record low rate of 4.9 per cent, however, and the 0.4 per cent m/m rise in average hourly earnings was too high for comfort in terms of meeting the 2 per cent CPI inflation target, it is too soon to expect the Bank to pivot. We forecast a 75 bp hike next month, although the chance of a smaller 50 bp hike has risen.”

Andrew Grantham, senior economist, CIBC Capital Markets

“While today’s figures muddied the waters further for policymakers, the Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting. Evidence that the economy is slowing due to weakening demand, rather than supply constraints, will bring a pause in this rate hike cycle following the next hike.”

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