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The “fixed-weight” average hourly earnings series that the Bank of Canada is following appear to be understating wage growth, but should provide a more accurate picture over the rest of the year. The shifts in the composition of employment during the …
2nd November 2021
Following the Bank of Canada’s hawkish message this week there is a risk that it raises interest rates sooner than we anticipate. Nevertheless, we continue to doubt that the Bank will hike by as much in the coming years as market pricing now implies. The …
29th October 2021
Third-quarter GDP growth weaker than expected GDP growth was weaker than expected in August and the preliminary estimate implies the economy stagnated last month. With third-quarter growth seemingly much weaker than the Bank’s latest forecasts imply, this …
The Bank of Canada called time on its QE program today and indicated that it could raise interest rates as soon as the second quarter of next year. The Bank’s GDP forecasts still look too upbeat to us, however, so we expect it will wait until the third …
27th October 2021
Wage growth remained moderate over the summer but, with labour shortages intensifying, it seems likely to accelerate sharply soon. The Bank of Canada’s third-quarter Business Outlook Survey (BOS) added to the evidence of widespread labour shortages, which …
26th October 2021
The winding down of government support to households and firms means the economy faces a large fiscal contraction this quarter, which we think will cause GDP growth to disappoint. The three programs that expire tomorrow are the Canada Recovery Benefit …
22nd October 2021
Strong August, but sharp decline in September highlights downside risks Retail sales increased markedly in August, as expected, but they appear to have fallen sharply in September and the expiry of the CRB presents a downside risk to spending over the …
Strong employment gains should be enough for Bank to call time on QE Labour shortages suggest Bank is overestimating the degree of economic slack But with wage growth low, unlikely to bring forward plans for rate hikes We expect the Bank of Canada to call …
21st October 2021
Overview – We now expect GDP growth to be 4.8% in 2021, rather than 5.0%, and 3.5% in 2022, down from 4.0%. Worsening labour shortages imply that spare capacity has been rapidly absorbed and point to a sharp acceleration in wage growth. In that …
20th October 2021
Further rise in inflation due to supply disruptions Inflation rose further to 4.4% in September due to both renewed supply disruptions and the easing of travel restrictions. We do not expect the various supply disruptions that are pushing up goods prices …
Mixed signals on inflation expectations and wage growth The Bank of Canada’s quarterly surveys point to significant upside risks to wage growth. That said, as wage growth was still low in September and the surveys suggest that longer-term inflation …
18th October 2021
We are not convinced that the further rise in oil prices this week will be sustained. Even if we are wrong, we doubt that higher oil prices will cause the Bank of Canada to become much more hawkish. The WTI oil price rose to more than $80 this week for …
15th October 2021
The expiry of the CRB this month may help to alleviate the shortages of unskilled labour, but there is little chance that the shortages of skilled labour will ease until immigration picks back up. And with vaccine mandates now being imposed across the …
14th October 2021
Rise in manufacturing sales volumes probably reversed in September Manufacturing sales volumes were a bit stronger than we expected in August, but the renewed cuts to production at auto production plants in September suggest that sales volumes fell again …
There have been rumours this week that the government will extend some of the emergency spending measures that are soon due to expire. They are unlikely to be extended in their current generous form, however, which suggests the economy faces a large …
8th October 2021
Wage growth still moderate despite strong employment gain The surprisingly strong gain in September means that employment is now back in line with its pre-pandemic level, but the still elevated unemployment rate and only moderate pace of wage growth …
The sharp slowdown in economic growth in the past couple of quarters suggests that the probability of the Bank of Canada following other central banks in becoming more hawkish is low. The risk will rise, however, if the September Labour Force Survey shows …
6th October 2021
Improvement in trade surplus better than expected The large improvement in the trade surplus in August was much better than the consensus estimate of a small deterioration, but we are wary about suggesting that there are upside risks to our third-quarter …
5th October 2021
It’s hard to argue against the Canada Mortgage and Housing Corporation’s (CMHC) latest warning that house prices look vulnerable to a correction. Indeed, we expect prices to fall in several cities by 2023. The forecasters at CMHC spared the rest of our …
1st October 2021
July better than expected, but Q3 GDP growth set to be relatively weak Despite the smaller-than-expected decline in GDP in July and the strong preliminary estimate for August, third-quarter GDP growth still looks to be much weaker than the Bank of Canada …
Due to the still high household saving rate, we have so far been sanguine about the risks posed by the winding down of benefit payments to households. But with goods shortages limiting the scope for other consumers to pick up the slack, there is a clear …
30th September 2021
Labour shortages have intensified in recent months, which could both act as a brake on the recovery and lead to a stronger acceleration in wage growth. According to the CFIB Business Barometer, the share of small firms suffering from labour shortages …
27th September 2021
The federal election confirms that the government will continue to play a larger role in the economy than before the pandemic, which is one reason to think that inflation will be higher in the coming years than in recent decades. The election itself was a …
24th September 2021
Fall in retail sales not as bad as it seems Retail sales fell in July, but that was mainly because consumers switched back to spending on services as the coronavirus restrictions were eased. In any case, the preliminary estimate suggests that retail sales …
23rd September 2021
There has been almost no change in the distribution of seats in Parliament following the election, but it seems likely that the minority Liberal government will press on with a modest loosening of fiscal policy. With 98% of the votes counted, Prime …
21st September 2021
We doubt that the outcome of next week’s federal election in Canada will have much bearing on the economy and the loonie. Instead, we still think that bond yield differentials and oil prices will be the main drivers of the Canadian dollar, and will push …
17th September 2021
Whether the Liberals or Conservatives triumph on Monday, it seems likely that they will hold fewer seats than the current minority Liberal government. With the balance of power shifting toward the smaller parties, this could result in even looser fiscal …
Recent developments have prompted us to revise up our inflation forecasts for the coming few quarters, although we still expect inflation to decline to less than 2% in the second half of next year. The key reason why we are increasing our forecasts is …
16th September 2021
Further rise in inflation mainly due to supply disruptions Inflation rose by more than expected last month but, with the gain mainly due to the ongoing supply disruptions, the Bank of Canada will remain comfortable with its view that elevated inflation is …
15th September 2021
Manufacturing sales volumes likely to remain depressed for rest of year Manufacturing sales fell in July and the renewed closures of auto plants across the continent, and the recent falls in some commodity prices, mean they are unlikely to recover …
14th September 2021
The speech by Governor Tiff Macklem this week suggests that, when the Bank of Canada next tapers its asset purchases, it may do so by less than is commonly assumed. Macklem starts talking about the end of QE The Bank kept policy unchanged at its meeting …
10th September 2021
Employment rises but hours worked little changed The easing of coronavirus restrictions helped drive a 90,000 increase in employment in August, but the unchanged level of hours worked is further evidence that third-quarter GDP growth is likely to be …
The costed election platform released by the Conservatives this week suggests that, if they were to form a government after this month’s election, they would run a similar fiscal policy to the Liberal Party. The opinion polls suggest that Prime Minister …
9th September 2021
There are some emerging downside risks to the economic outlook both domestically and globally but, after taking a well-anticipated pause at this meeting, we do not expect those risks to prevent the Bank from tapering its asset purchases at the next …
8th September 2021
The unexpected contraction in second-quarter GDP comes at a bad time for Prime Minister Justin Trudeau, with support for the ruling Liberal Party falling further this week and projections now pointing to a Conservative victory in the election this month. …
3rd September 2021
Trade balance deteriorates, but remains in surplus The trade surplus was lower than expected in July, although expectations probably shifted following the preliminary GDP estimate released earlier this week, which showed a surprise fall in GDP in July. …
2nd September 2021
GDP unexpectedly contracted in second quarter, and probably again in July. Bank to wait until October at the earliest to taper again. Guidance on policy rates set to be unchanged. The unexpected contraction in second-quarter GDP means the Bank of Canada …
1st September 2021
GDP unexpectedly falls in Q2 and again in July The unexpected fall in second-quarter GDP means that there is little chance the Bank of Canada will press on with its tapering plans next week, particularly as the preliminary estimate implies GDP also fell …
31st August 2021
Housing has emerged as one of the key issues in the federal election campaign but, even if some of the latest proposals are implemented, we doubt that they would have much impact on house prices. Ahead of next month’s election, the Liberal Party has …
27th August 2021
We are not convinced by the Bank of Canada’s recent claim that CPI-trim and CPI-median are currently overstating underlying inflation, although their elevated level compared to CPI-common is mainly due to external factors that should prove at least partly …
26th August 2021
GDP is on track to return to its pre-pandemic level this month but, with the number of coronavirus infections now picking up, there is a growing risk that the recoveries in some sectors go into reverse. Admittedly, the progress on vaccinations means that …
24th August 2021
Even if Prime Minister Justin Trudeau’s decision to trigger an election during the emerging fourth wave of the pandemic does not backfire, we doubt a majority win for the Liberals on September 20 th would materially affect the outlook for fiscal policy. …
20th August 2021
Re-opening drives strong rebound in sales The re-opening of non-essential stores drove a 4.2% m/m rise in retail sales in June. While the preliminary estimate for July suggests retail sales dropped back again, that was most likely because consumers …
House price inflation close to a peak The Teranet measure of house price inflation accelerated to a 32-year high in July and is on track to pick up further in August. That should mark the peak but, with the sales-to-new listing ratio still elevated and …
19th August 2021
Re-opening and supply constraints lift inflation Inflation jumped to 3.7% in July as the coronavirus restrictions were eased and global supply chain issues pushed up goods prices. As the Bank of Canada’s preferred measure of core inflation was unchanged …
18th August 2021
Slow recovery in store for manufacturing sales Manufacturing sales started to rebound in June but, with the global semiconductor shortage set to ease only gradually, it is likely to be a slow recovery for manufacturing sales volumes. The 2.1% m/m rise in …
16th August 2021
A new paper from the Bank of Canada outlines some additional economic benefits of a new monetary policy framework, which could be a sign that there is a greater chance of the Bank adopting average inflation targeting this year than we have assumed. Every …
13th August 2021
Distortions to the data mean it is hard to gauge the current pace of wage growth, but the business surveys suggest it will soon head back to pre-pandemic levels. Given the Bank’s upbeat view on the outlook for productivity growth, it may not be too …
11th August 2021
Housing market continues to cool There was more evidence that the housing market is cooling this week, with home sales slipping to 12-month lows in seasonally adjusted terms in both Toronto and Vancouver. (See Chart 1.) In Toronto, sales fell by a further …
6th August 2021
Solid rebound in total hours worked shows impact of reopening The 94,000 increase in LFS employment in July was something of a disappointment given the lifting of coronavirus restrictions at the start of the month in many provinces, but the solid 1.3% m/m …
