Bank of Canada is anticipated to raise rates in the coming week; In light of rise in unemployment rate.

The Canadian labor market is displaying indications of weakening as the unemployment rate increases and wage growth decelerates.

However, despite these developments, forecasters anticipate an interest rate hike by the Bank of Canada in the upcoming week, supported by another substantial job expansion in June.

On Friday, Statistics Canada released a report stating that the economy added 60,000 jobs last month, primarily driven by an increase in full-time employment. Nevertheless, as more Canadians actively sought employment and the population continued to grow, the unemployment rate rose to 5.4 percent, reaching its highest level in over a year.

“The reason the unemployment rate can rise alongside historically strong employment growth is that population growth continues to set new records — including an 84k monthly increase in June,” said RBC assistant chief economist Nathan Janzen.

In June, the unemployment rate experienced its second consecutive monthly increase, drawing the attention of economists who are monitoring signs of a softening labor market alongside elevated interest rates.

Simultaneously, employers demonstrated a renewed interest in hiring during June, following a setback in May when the economy lost 17,000 jobs.

Job gains in June were primarily observed in sectors such as wholesale and retail trade, manufacturing, health care and social assistance, as well as transportation and warehousing.

While the indications of a slight easing in the labor market may be seen as positive news by the Bank of Canada, forecasters maintain their expectation of an interest rate hike during the central bank’s upcoming decision on Wednesday.

janzen commented, “The June labor market data presented a mixed picture but should not be significant enough to deter the Bank of Canada from implementing a second consecutive 25 basis point interest rate increase at the next policy decision next week.“