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Inflation expectations rise as capacity constraints worsen The Bank of Canada’s latest business and consumer surveys suggest the upside risks to inflation over the next couple of years have increased, and raise the chance that the Bank will hike as soon …
17th January 2022
Manufacturing sales likely to drop back again amid Omicron wave Manufacturing sales rose strongly for the second month running in November, but the disruption to labour supply from the Omicron wave presents a clear downside risk to output in December and …
The various reports this week of intense labour shortages and the slump in the Ivey PMI in December suggest that the Omicron variant is causing widespread economic disruption. The Ivey all-economy PMI plunged by 16 points to 45.0 in December, its lowest …
14th January 2022
We expect the Bank of Canada to wait for the coronavirus restrictions to be lifted before starting to raise interest rates, suggesting it is more likely to begin hiking in March or April than at its meeting this month. OIS futures imply a near 50% chance …
12th January 2022
The Omicron wave will be characterised more by heightened absenteeism from work than previous waves. This raises the risk that the hit to activity will be larger than current restrictions alone might imply. Canada’s two most populous provinces, Ontario …
7th January 2022
Decent December to be followed by much weaker January The strength of employment in December is mainly because the LFS reference week preceded the onset of the Omicron wave. Nevertheless, the fall in hours worked is probably a taste of what is to come, as …
We expect GDP to grow strongly once the current restrictions are eased, but we are sceptical that either GDP growth or inflation will be as high this year as widely anticipated. This leads us to think the Bank of Canada will hike interest rates by 75 bp …
6th January 2022
Goods trade surplus at 13-year high The jump in the goods trade surplus to a 13-year high in November is another sign that the flooding in British Columbia had only a small impact on overall economic activity. It confirms that the economy headed into the …
The economy gained momentum at the start of the fourth quarter and we have revised up our forecast for fourth-quarter GDP growth to 5.5% annualised, from 4.0%. Given the rapidly deteriorating coronavirus situation, however, we have revised down our …
23rd December 2021
Fourth quarter GDP growth to be stronger than expected The strong rise in GDP in October and preliminary estimate of another solid gain in November imply that fourth quarter GDP growth will be stronger than the Bank of Canada anticipated, and means the …
The closure of many high-contact services in Quebec yesterday is likely to soon be matched by tighter coronavirus restrictions elsewhere. That said, if other provinces also allow stores and restaurants to stay open, then the hit to GDP will be smaller …
21st December 2021
Strength in October and November unlikely to be repeated in December Retail sales rose strongly in October and the preliminary estimate points to another solid gain in November. That is likely to mark the peak for the next few months, however, as the …
The activity data released this week suggest that the economy was in a strong position in the fourth quarter and the price data imply that inflationary pressures are broadening. The surge in coronavirus infections, however, means there are growing …
17th December 2021
Underlying inflationary pressures still mounting Consumer prices rose at a more modest pace in November, but the increase in the Bank’s preferred measure of core inflation suggests that price pressures are broadening. Inflation was unchanged at 4.7% in …
15th December 2021
The government’s fall fiscal update suggests the public finances will be in a better position in the coming years than we had assumed, but this is largely because the government chose not to deliver on any of its recent election pledges. If the government …
14th December 2021
The Bank of Canada’s updated policy framework will not have a material effect on policy over the next couple of years, but it does support our forecast that inflation will be slightly higher on average over the rest of this decade than it was in the …
13th December 2021
The Bank of Canada’s increased concerns about wage and cost pressures suggest it will start to tighten policy in April, especially if the government loosens fiscal policy in next week’s fall fiscal update. Bank to turn more hawkish in January In the …
10th December 2021
The Bank of Canada’s unchanged policy rate guidance implies it could wait until the third quarter before raising rates but, given wage growth is now picking up sharply, we expect it to pull the trigger in April. As the Bank updated its forward guidance …
8th December 2021
Restart of motor vehicle production boosts trade The restart of motor vehicle production across the continent boosted Canada’s exports and imports sharply in October, although there are downside risks to trade in November due to the infrastructure damage …
7th December 2021
As the labour market is nearing a full recovery and wages are rising strongly, we now expect the Bank to hike interest rates in April, rather than waiting until July, as we previously expected. Fourth-quarter GDP growth not as strong as it looks …
3rd December 2021
Surge in employment makes April rate hike increasingly likely The surge in employment in November and the further strong gain in average earnings have arguably tipped the odds in favour of the Bank of Canada hiking interest rates in the first half of next …
We are not convinced by the Bank of Canada’s view that the renewed strength of house prices is due to “extrapolative expectations”. With mortgage rates jumping recently, the large price gain in October may reflect buyers with pre-approved mortgages, at …
2nd December 2021
Economy a bit stronger than expected but BC floods and Omicron are downside risks Bank to keep forward guidance on policy rate unchanged despite rising wage growth We do not expect the Bank to significantly alter its monetary framework later this month …
1st December 2021
Downward revision to Q2 flatters Q3 GDP growth We wouldn’t put too much weight on the stronger-than-expected pace of third-quarter GDP growth because it mainly reflects a downward revision to GDP in the second quarter. Nevertheless, the latest GDP data …
30th November 2021
Canada avoiding another winter wave Winter is coming but, unlike Europe and the US Midwest too, Canada hasn’t seen a new wave of coronavirus infections. By this time last year there were already signs of a rapid pick-up in the most-populated Canadian …
26th November 2021
The sharp slowdown in the pace of hiring in the October Labour Force Survey caught the headlines, but the more important development was the sharp rise in fixed-weight average hourly earnings. Based on our seasonal adjustment, the fixed-weight index, …
23rd November 2021
The renewed surge in house prices could persuade the Bank of Canada to raise interest rates sooner than we forecast, although the hit to activity from the devasting floods in BC this week reduces the chance of the Bank becoming more hawkish any time soon. …
19th November 2021
Supply disruptions, warm weather and reduced policy support weigh on sales The ongoing supply chain disruptions and unseasonably warm weather explain most of the weakness of retail sales in September, but it seems likely that the winding down of fiscal …
Price inflation in Canada and the US followed a similar trend in the 2010s, but we think the pandemic marked a turning point, and expect the former to remain lower than the latter. The October CPI data (see here ) confirmed that prices have increased by …
18th November 2021
Further rise in inflation mainly due to energy prices Inflation rose to an 18-year high of 4.7% in October but, as this was driven primarily by higher energy prices and was in line with the Bank of Canada’s forecast, it is unlikely to shift the timing of …
17th November 2021
Cuts to motor vehicle production weigh heavily on manufacturing sales The renewed closures of auto plants weighed heavily on manufacturing sales in September. While many factories re-opened again this month, there is still a chance that overall …
15th November 2021
The upside surprise to consumer price inflation in the US in October suggests there are also further upside risks in Canada, although the data next week are unlikely to show as large an increase in inflation. There is a positive correlation of 0.7 between …
12th November 2021
We are doubtful that a significant share of households’ “excess” savings will be spent. Even if we are wrong, there are several other downside risks to the consensus forecasts for consumption growth, including the recent removal of financial aid to …
11th November 2021
Supply shortages The Markit manufacturing PMI strengthened to an eight-month high of 57.7 in October, up from 57.0 the month before, with the new orders and employment sub-indices both rising slightly. But there were also signs that supply shortages are a …
5th November 2021
Employment growth slows as normalcy returns The 31,200 gain in employment in October represented a marked slowdown from the 157,000 increase the month before, but the underlying details were encouraging and there appears to be much less labour market …
Surplus widens, as imports fall by more than exports The trade surplus widened to $1.9bn in September, from $1.5bn , which is better than we were expecting in light of the flash estimates suggesting that manufacturing sales declined last month and that …
4th November 2021
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 …
