First National Financial LP

Residential Market Commentary - BoC expected to stay on the sidelines

  • First National Financial LP

The Canadian economy seems to be ganging-up on the Bank of Canada as it tries to wrestle inflation back to 2.0%.

The latest employment numbers, once again, came in well above expectations.  Statistics Canada reports 35,000 jobs were created in March, nearly triple what had been forecast.  As a result of the on-going demand from workers, wage increases have also caught up to inflation.  Wages are up 5.3% from a year ago.

"A lot of employers say they've been having trouble finding workers, and what do you do? You bid up your offer and that tends to drive wages up," said Pedro Antunes, chief economist with the Conference Board of Canada in an interview with the CBC.

It’s good news for workers, but it makes things harder for the central bank which has been trying to avoid outsized wage growth because it is seen as a driver of inflation.  Wages tend to be “stickie”, in that they only go up, unlike prices for commodities and services which can decline based on supply and demand.

"I don't necessarily think that's bad news, but ... we're in this kind of bizarre world where sometimes the good news is not so good news for the Bank of Canada," said Antunes.

This follows stronger than expected January GDP numbers.  The economy grew 0.5% for the month, defying the BoC’s efforts to slow things down.  However, the Bank is expected to continue its rate-hike pause at this week’s setting, as it waits for last year’s rapid series of increases to work their way through the economy.