Official data on Friday showed that the jobless rate in Canada fell to a record low after more jobs were added in May than expected. Moreover, wage growth also increased and this prompted the case for a massive hike in the interest rates in the country by the central bank next month.
Official Job Statistics
The data from Statistics Canada showed that a total of 39,800 jobs had been added in the month of May for full-time work. This was beyond expectations of about 30,000 jobs. According to predictions, the jobless rate had been expected to remain the same 5.2%, but it fell to 5.1%. Permanent employees also saw an increase of average hourly wage, as it rose 4.5%, while it had been 3.4% in April. This was in accordance with the gains recorded in 2019, when the labor market had been quite tight.
Market analysts said that this would certainly give rise to a hawkish stance where the central bank is concerned and would increase the chances of an interest rate hike of about 75 basis points in the next month. This data essentially signals to the Bank of Canada that they are a bit slow when it comes to rate hikes. Last week, the central bank had increased the interest rate from 1.0% to 1.5%, which is the second time that it has increased the rate by 50 basis points.
The bank also stated that it would become more aggressive in order to curb inflation, which has reached a record high of 31 years.
Expectations of the Market
According to the expectations of money markets, there is a 60% possibility that the Bank of Canada will up the interest rates by 75 basis points in the next month. By the end of the year, the interest rate is expected to reach 3.75%, which is a sharp increase from the 0.25% it had been at the start of the year.
However, the bigger question for economists is about inflation and whether it crossed the 6.8% mark where it had reached in May, making it the highest in four decades. The inflation data is expected in the next month. The rising food and fuel prices in the United States saw its inflation also hit the 8.6% mark.
Economists said that the Bank of Canada was focused on the inflation figures for the most part and the strong numbers from the US indicate that there is a lot of pressure all across the board. While the wage gains in Canada are not rising at the same pace as inflation, they have undoubtedly gained momentum and this could lead to a broader increase in prices because employers are likely to pass on these costs to consumers.
The job gains recorded in Canada were mostly for full-time workers, which offset the losses for part-time jobs. There were broad gains recorded in the service sector, while there was a loss of jobs in the goods sector. There was a 0.7% fall in the loonie against the greenback, as it reached 1.2785.