By Julie Gordon and Ismail Shakil
OTTAWA (Reuters) -Canada’s jobless rate inched down to a new record low after adding more jobs than expected in May, and wage growth picked up steam, official data showed on Friday, bolstering the case for an even larger rate increase next month by the central bank.
Canada added a net 39,800 jobs in May, entirely in full-time work, beating expectations for a gain of 30,000, Statistics Canada data showed. The jobless rate dropped to 5.1%, beating predictions it would remain at 5.2%.
The average hourly wage of permanent employees rose 4.5%, accelerating from 3.4% April and in-line with gains seen in 2019, when the labor market was also extremely tight.
The result is likely to bolster calls for the Bank of Canada to act more aggressively at its July interest rate decision.
“Certainly this does come down on the hawkish side of the ledger and it is going to add to the speculation around a potential 75-basis-point move next month,” said Andrew Kelvin, chief Canada strategist at TD Securities.
“It’s another signal to the Bank of Canada that they are a little bit behind the curve on their rate hikes.”
The central bank hiked to 1.5% from 1.0% last week, its second consecutive 50-basis point hike, and said it would act “more forcefully” if needed to curb inflation, which is running at a 31-year high.
Money markets see about a 60% chance the bank will increase by 75 bps on July 13 and expect rates to hit 3.25% by-year end, up sharply from 0.25% in January.
For economists, the bigger question is whether inflation moved above 6.8% in May to hit a four-decade high. That data is due later this month. U.S. inflation accelerated to 8.6% in May, driven by rising gasoline and food prices.
“I think (the Bank of Canada’s) solitary focus these days is on their inflation target,” said Derek Holt, vice president of Capital Markets Economics at Scotiabank, adding the strong U.S. print shows “we’re dealing with continental wide pressures.”
While Canadian wage gains are not yet keeping pace with inflation, they are gaining momentum and that could feed into broader price increases as employers pass those costs on to customers.
“When we look at hourly wages for current workers, leaping to 4.5%…We are now at the top of the range we saw in that last cycle. So it does show that very tight labor market,” said Jimmy Jean, chief economist at Desjardins Group.
Canada’s job gains were wholly in full-time work, offsetting a loss of part-time jobs. The services sector saw broad gains, while the goods sector lost jobs.
The loonie was trading 0.7% lower at 1.2785 to the greenback, or 78.22 U.S. cents, as the U.S. dollar surged against a basket of major currencies.
(Reporting by Julie Gordan and Ismail Shakil in Ottawa, additional reporting by Dale Smith and Steve Scherer in Ottawa, Fergal Smith in Toronto, editing by Mark Heinrich Carmel Crimmins, Kirsten Donovan)
