Canada: BoC likely to raise rates by 75 bps next week despite the decline in employment – CIBC

The net change in employment in Canada was negative in June by 43K, against expectations of an increase of 23K. Analysts at CIBC point out that other details of the report keep the Bank of Canada on its way to a 75 basis points rate hike next week. 

Key Quotes: 

“At a time in which modestly bad news would be good news, Canada's June jobs data weren't really bad enough to generate a sigh of relief for those concerned about an inflationary overheating. The 43,000 jobs decline was certainly a break from a run of hefty hiring since February, but other signposts, from brisk year-on-year wage gains, a climb in hours worked, and a new low in the unemployment rate, should be enough to have the Bank of Canada hiking rates by an outsized 75 basis points next week.”

“The Bank of Canada's concerns over labour market tightness won't be eased given that the unemployment rate dropped two ticks to a new cycle low of 4.9%. That reflected a drop in labour force participation, as fewer of those not working were actively seeking jobs.”

“Economic growth in the second quarter should still be in the 4% range, and even with the drop in employment, other signposts in today's data are consistent with the need to tighten monetary policy further. We're sticking to our call for a 75 basis point rate hike next week, with the overnight rate peaking at 3% this year.”