(Ottawa) Experts expect the Bank of Canada to raise its key rate next week, as the state of the economy remains precarious.
The decision will be announced on Wednesday. Last month, the Canadian central bank raised its key rate by a quarter point to 4.75%.
To justify its decision to end the pause in key rate hikes, the Bank of Canada had indicated that “the accumulation of data since January was sufficient to convince the Council that monetary policy should be more restrictive to rebalance the supply and demand, and bring inflation back to the 2% target.
Deloitte chief economist Dawn Desjardins says recent data seems to signal that the economy is taking a new turn. For example, the latest jobs report indicated that the unemployment rate had increased and wage growth had slowed.
The overall picture, however, suggests that inflation remains strong, wage growth is strong and the economy is choppy.
“I really think things are changing. Are they changing fast enough for the Bank of Canada’s taste? Maybe not,” says M.me Gardens.
The Bank of Canada did not reveal what it intended to do in July, sending few signals to the financial markets. She said only that her board of directors will make a decision based on the next economic data.
The institution carefully examines what is happening in the labor market. She has previously warned that wage growth “was holding above rates that would allow the 2% inflation target to be met without substantial increases in productivity”.
The economy added 60,000 jobs in June, boosted by gains in full-time work, Statistics Canada said Friday. But as more Canadians looked for work and the population continued to grow, the unemployment rate soared to 5.4%, its highest level in a year.
Average hourly earnings rose 4.2% in June from a year earlier, after rising 5.1% in May (unadjusted for seasonality).
In its recent Business Outlook Survey, the Bank of Canada noted that companies “no longer expect labor costs to cause further upward pressure on the price growth of their outputs in next year “.
The senior director of the Canadian Economy team at Desjardins Group, Randall Bartlett, believes that the labor market remains tight.
“There is still great strength supporting the Canadian labor market. We can expect the key rate to approach 5%”, he maintains.
Price growth has slowed since last year. In May, the inflation rate rose to 3.4%, a sharp drop from the peak of 8.1% reached last summer. But much of this decline was attributable to lower energy prices, as prices in other sectors of the economy continued to climb.
In fact, core inflation, which excludes the most volatile price categories, accelerated in May.
The Bank of Canada and private sector economists say the real challenge is to get the inflation rate down to 2%.
Economists expected a recession, but the economy continued to grow, even as interest rates hit their highest levels in decades.
This is why Bartlett believes the Bank of Canada is right to remain so vigilant.
“The Bank is trying to lay the foundations to bring inflation back to 2% in a sustainable way,” he says.