By Ketki Saxena
Investing.com – This week will be a big one in Canadian economics, with all eyes on the Bank of Canada on the 8th of March for its Monetary Policy Announcement. After 8 consecutive rate hikes that sent its overnight policy rate soaring from 0.25% to 4.5% over the last year, the Bank of Canada is now expected to maintain the policy rate at its current level.
At its last policy announcement in late January, the Bank of Canada signalled a “conditional pause” to raising interest rates, with further policy moves to be guided by incoming data.
Here’s a look at the key indicators the Bank of Canada looks at to measure progress and balance the risk of over vs. under tightening policy.
Canadian Inflation Moderates
Canadian inflation moderated to 5.9% in January, the first time since February 2022 that the Consumer Price Index has ticked in below 6%. The reading was cooler than the 6.3% seen in December and the 6.1% year over year increase expected by analysts. Excluding food and energy, prices rose 4.9% on an annual basis in January, compared with a rise of 5.3%. The average of two of the central bank’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 5.1% compared to a 5.3% reading in December.
Canadian Economy Stalls
The Canadian economy stalled in the fourth quarter of last year, with real gross domestic product remaining unchanged in the Q4 2022 after five consecutive quarters of growth. Statistics Canada’s preliminary estimate had predicted 1.6% annualized growth for the quarter. In December, Canada's total economic output declined by 0.1% from November's level. Advance estimates for January showed a 0.3% tick higher in the advance estimate for January. The data shows that the Canadian economy is slowing more than expected as previous rate hikes from the Bank of Canada trickle through the economy.
Canadian Labour Market Runs Hot
Canada’s blockbuster jobs report was a key piece of data that had analysts raising bets on the possibility that the Bank of Canada might hike interest rates this year. The Canadian economy reported 150,000 k jobs in January, compared to expectations for 15 K jobs added. However, other labour market indicators were less robust. Job vacancies - although still at historically high levels - declined, and the Bank of Canada’s Q4 2022 Business Outlook Survey hinted at slower hiring plans.