Solid job growth will not force Bank of Canada to change its rate-increase path

Although Canada’s job market reported a strong jobs gain last month, many economists don’t believe it will change the Bank of Canada’s rate increase cycle.

In October, Canada’s labour market added 108,000 jobs, exceeding Bloomberg surveyed economists’ forecast of only 10,000 new positions.

However, according to Andrew Grantham, senior economist at CIBC Capital Markets, the central bank will still raise its key lending rate by 0.5% at its next meeting in December.

“Today’s data shouldn’t change the fact that we are heading towards the end of the rate-hike cycle, but it does support the possibility of a rate increase by 0.5% and not by 0.25% in December,” – Grantham noted.

The main drivers of October’s job growth were construction, manufacturing, and accommodation and food services.

Douglas Porter, chief economist at BMO Capital Markets, says the BoC will monitor the renewed growth in wages thoroughly.

Last month, average hourly wages were up by 5.6% annually, following a 5.2% gain seen in September.

It was the fifth month with a more than 5% increase in a row.

Stephen Brown, senior Canada economist with Capital Economics Ltd., says it could be a “worrying development” for the central bank.

“The strong job market results combined with wage growth may weaken the Bank’s belief that is has done enough to bring inflation back to its target level. As a result, we may see more speculations that the BoC will raise its overnight rate by 0.5% in December, and not by 0.25% as it has previously hinted. Nevertheless, we still have the November Labour Force Survey results and the October Consumer Price Index report before that Bank’s meeting,” – Brown added.

The last central bank’s rate meeting in 2022 is scheduled for December 7.