Newly released figures from Canada’s national statistics agency indicate that the country’s labor market remains robust, with 41,000 jobs added in April, more than double the figure anticipated in a recent Bloomberg survey. This marks the eighth consecutive month of gains for the labor market, which could complicate the Bank of Canada’s approach to interest rates. The central bank had indicated that it was willing to keep rates unchanged if the economy performed as expected for the rest of the year, but a stronger-than-expected jobs outlook may lead to another rate increase. The Bank has also highlighted the risks of elevated wage growth, service price inflation, and corporate pricing behavior to its plans to bring annual price growth back to the 2% target.
The Bank of Canada’s decision to pause rate hikes in March has had significant implications for the country’s housing and mortgage markets, according to Sadiq Boodoo, President of Approved Financial. Many would-be buyers had been waiting to see how high rates would rise before making a purchase, leading to longer timeframes for pre-approval and a decrease in buying power. Boodoo suggests that inflation may fall more rapidly and further than planned because of competing forces, and recent observations indicate that Canada’s annual inflation rate may be closer to the central bank’s target than previously thought.
In conclusion, while the labor market continues to perform well, the Bank of Canada’s approach to interest rates may be complicated by a stronger-than-expected jobs outlook. The Bank is closely monitoring risks to its plans to bring annual price growth back to the 2% target, including elevated wage growth, service price inflation, and corporate pricing behavior. The pause on rate hikes in March has had significant implications for Canada’s housing and mortgage markets, and competing forces may cause inflation to fall more rapidly and further than planned.