By Julie Gordon
OTTAWA -Canada’s unemployment rate unexpectedly fell to a new record low in June, even as the economy posted a surprise decline in jobs, while wages accelerated sharply, official data showed on Friday, reinforcing calls for a supersized interest rate hike.
The Canadian economy lost 43,200 jobs in June, mostly among older workers, missing expectations of a gain of 23,500 jobs, Statistics Canada data showed. But the unemployment rate fell to 4.9%, beating forecasts that it would stay flat at 5.1%, as fewer Canadians looked for work.
“If anything, the data points to a tighter labor market, which is inherently inflationary,” said Andrew Kelvin, chief Canada strategist at TD Securities. “Nothing about this report will give the BoC (Bank of Canada) pause from hiking by 75 basis points next week.”
The Bank of Canada is widely expected to make a very rare 75-basis-point rate increase at its meeting next week, as it looks to act “forcefully” to curb hot inflation, currently running at a near 40-year high.
One of the central bank’s key concerns is that inflation could become self-fulfilling, with higher prices leading people to demand higher wages, thus leading to more costs for businesses and still higher inflation.
That means it will be looking at wage gains for permanent employees, up 5.6% in June compared with 4.5% in May, with concern, said economists.
“Forget the messy headline number. The main takeaway here is that Canada has the tightest job market in generations, and now wages are starting to move with purpose,” Doug Porter, chief economist at BMO Capital Markets, said in a note.
“Inflation has now landed with a thud in the job market.”
Total hours worked were also up for the first time since March, rising 1.3%, Statscan said.
The June job losses were entirely in the services sector, led by a sharp decline in retail trade, and partially offset by a job gain in the goods sector.
Statscan said data over the coming months would shed light on whether retail sector employment “might be impacted by any changing consumer behaviors associated with inflation.”
The Canadian dollar was trading at 1.30 to the greenback, or 76.92 U.S. cents.
(Reporting by Julie Gordon in Ottawa, additional reporting by Ismail Shakil, editing by Steve Scherer, Jason Neely, Chizu Nomiyama and Jonathan Oatis)
