Bank of Canada expected to raise rates next week, despite rise in unemployment rate

Bank of Canada expected to raise rates next week, despite rise in unemployment rate

The Canadian labour market is showing some signs of softening as the unemployment rate rises and wage growth slows, but with another solid job gain in June, forecasters are still expecting an interest rate hike by the Bank of Canada next week.

Statistics Canada reported Friday the economy added 60,000 jobs in June, driven by gains in full-time work.

But as more Canadians searched for work and the population continued to grow, the unemployment rate climbed higher to 5.4 per cent, the highest it’s been in more than a year.

“The reason the unemployment rate can rise alongside historically strong employment growth is that population growth continues to set new records.” wrote RBC assistant chief economist Nathan Janzen in a note to clients.

June marked the second month in a row the unemployment rate has risen.

Though signs of loosening in the labour market likely come as good news to the Bank of Canada, forecasters are still expecting the central bank to raise rates at its next interest rate decision on Wednesday.

The central bank opted to end its pause on rate hikes in June after a string of economic data suggested its aggressive interest rate hikes weren’t cooling the economy fast enough. The quarter percentage point rate hike brought its key rate to 4.75 per cent, the highest it’s been since 2001.

The Bank of Canada has repeatedly said that the country’s hot labour market is contributing to high inflation.