We expect rate hikes by 25 basis points in January and March: Citi economist
Experts are flagging the latest jobs gain raises the probability of the Bank of Canada (BoC) increasing its key policy rate at its next meeting.
On Friday, Statistics Canada reported the Canadian economy exceeded economist expectations by adding 104,000 jobs in December. Canada’s jobless rate also fell to a near record low of 5.0 per cent.
Economists tracked by the Bloomberg terminal were expecting an increase of 5,000 positions and a jobless rate of 5.2 per cent.
In a note to clients on Friday, Andrew Grantham, executive director and senior economist at CIBC Capital Markets, said this jobs gain could translate into another 25 basis point (bps) interest rate hike at the Bank of Canada’s next meeting.
“The strong headline readings raises the probability of another 25bp hike at the January meeting, and is a clear risk to our forecast for a hold,” Grantham said.
“However, the next CPI (Consumer Price Index) report and the BoC's own business and consumer surveys, released in two weeks' time, will also be important in making that final decision.”
The Bank of Canada will be releasing its Business Outlook Survey on Jan. 16 and Statistics Canada will post the latest read on Canadian inflation with the Consumer Price Index on Jan. 17.
WEAKER TOTAL HOURS AND WAGE GAINS
While the December job gains surpassed economists’ expectations, the Labour Force Survey wasn’t strong across the board.
Total hours worked were up 1.4 per cent compared to a year ago.
“Total hours worked, which feeds more directly into GDP calculations, was little changed on the month. Despite the apparent hiring spree, the economy didn’t seem to be producing much more goods and services,” said Royce Mendes, managing director and head of macro strategy at Desjardins Group, in a note to clients on Friday.
“Our tracking for Q4 (fourth quarter) GDP will likely remain around 1.5 per cent.”
The annual pace of wage gains also decelerated last month. Year-over-year wage growth came in at 5.1 per cent, marking the seventh consecutive month its been above five per cent.
“Overall, the picture painted by today’s Labour Force Survey is hardly as strong as the headline jobs reading would suggest,” Mendes said.
“Still, the surge in hiring is probably enough to tilt the odds in favour of a final 25bp rate hike from the Bank of Canada later this month.”