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Consumer Prices (Apr.)

CPI inflation edged up to a new cyclical high of 6.8% in April, from 6.7%, and, together with the more marked increases in core inflation, that almost guarantees the Bank of Canada will hike its policy rate by another 50bp next month.
Paul Ashworth Chief North America Economist
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More from Canada

Canada Economics Weekly

Economy losing momentum

While the apparent contraction in GDP in May appears to have been partly due to temporary factors, it also reflects the impact of the surge in interest rates on housing. With the business surveys for June also showing a loss of broader momentum, the economy may be slowing even sooner than we anticipated.

We are sending the Weekly early this week as our Toronto office is closed for the Canada Day holiday on Friday. Happy Canada Day!

30 June 2022

Canada Data Response

GDP by Industry (Apr.)

The preliminary estimate suggests that the healthy 0.3% m/m rise in GDP in April was followed by a shock 0.2% contraction in May but, as this appears to have been partly due to temporary factors, it probably won’t stop the Bank of Canada from enacting a larger 75 bp interest rate hike next month.

30 June 2022

Canada Chart Book

Tight labour market pushing up wages

The tight labour market is putting upward pressure on wages, with the Labour Force Survey showing a strong 1.0% m/m rise in average hourly earnings in May. While the annual rate of wage growth, at 3.9% y/y, remained lower than before the pandemic, base effects mean it is likely to accelerate to closer to 6% over the second half of 2022. All this adds to the pressure for the Bank of Canada to rapidly tighten policy, particularly as the current weak rate of productivity growth suggests that there is minimal scope for businesses to absorb higher wage costs. We expect the Bank to raise its policy rate by 75 bp in July and follow that with a further 50 bp hike in September and a 25 bp hike in October, to take the policy rate to 3.0%. By then, we think the weakness in the housing market and a sharp slowdown in employment growth will be enough to cause the Bank to pause its tightening cycle, and ultimately remain on the side lines as GDP growth slows below its long-run potential in 2023.

29 June 2022

More from Paul Ashworth

US Data Response

Retail Sales (Apr.)

Never bet against the US consumer has always been a good adage to bear in mind throughout my 20-plus years in the markets. Despite the surge in prices weighing on their purchasing power, the US consumer now appears to be single-handedly keeping the global economy afloat again.

17 May 2022

US Economics Weekly

Inflation looking better under the hood

Fed officials will have been eyeing the flood of red on their screens this week with a growing sense of foreboding. Admittedly, for GDP growth to slow and inflation to fall, they want financial conditions to tighten, which includes lower equity prices, a stronger dollar and higher credit spreads. But they also want those adjustments in markets to be orderly and proportionate. With the S&P 500 down almost 19% since the start of the year, including 8% in the past week alone, what started out as an orderly repricing, in response to the Fed’s monetary tightening, is at risk of becoming a disorderly rout.

13 May 2022

US Economics Weekly

Fed hikes as acute shortages drive up costs

The latest weakness in equities isn't going to stop the Fed from continuing to hike its policy rate by 50bp in June and July, not when labour market conditions remain unusually tight and, in an environment of unusually weak productivity, wage growth is unusually elevated.

6 May 2022
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