The Bank of Canada’s next scheduled rate announcement is April 29. This meeting will include a Monetary Policy Report outlining its most recent economic projections, along with an assessment of evolving risks.
Labour force data released on April 10 was largely in line with expectations and is unlikely to change the Bank’s current economic outlook.
A more fundamental issue will be how the blockade of the Strait of Hormuz affects energy supply, and when the Bank will need to offset any secondary effects on wages and prices.
March Labour Force Data
Canada’s labour market showed signs of stabilization in March, with a modest gain of 14,100 jobs following a volatile 108,700-decline to start the year. While the headline increase is welcome, the underlying details remain soft, as full-time employment continued to edge lower.
The unemployment rate remained stable at 6.7 per cent. The labour force, after sharp declines in the previous two months, edged up by 15,000 as the participation rate steadied. Total hours worked rose 0.2 per cent in March, though it remains down 0.4 per cent on an annualized basis for Q1
From a monetary policy perspective, this report does little to shift the needle for the Bank of Canada.
The goods sector provided the heavy lifting (+12,500), supported by resilient construction and manufacturing. In contrast, services were flat, as gains in professional services were offset by weakness in finance and hospitality.
Manitoba was the clear outlier, posting the largest non-pandemic job growth on record. Ontario’s labour market remains under pressure, with an unemployment rate of 7.6 per cent. British Columbia registered the greatest weakness, with employment down 1.2 per cent over the past year. The province’s unemployment rate rose by 0.6 percentage points to 6.7 per cent.
However, there was an unexpected acceleration in average hourly wages, which jumped to 4.7 per cent year-over-year from 3.9 per cent. While wage data is “noisy,” this will likely be something the Bank of Canada watches closely.
The Blockade of the Strait of Hormuz
The naval blockage of the Strait of Hormuz announced April 12 has dimmed hopes for a quick end to the conflict in the Middle East. Since the announcement of an overall blockade, its intent has been clarified as focusing on cutting off Iran’s oil exports and limiting its ability to charge passage fees.
Before the opening strikes by the U.S. and Israel against Iran on February 28, roughly one-fifth of global oil flows passed through the Strait of Hormuz. That flow has since slowed to a trickle, upending supply chains for oil, fertilizers, apparel, and industrial goods. Analysts have warned that clearing the backlog could take weeks even after a resolution.
Oil prices were up 8 per cent, and natural gas prices as much as 17 per cent in early trading Monday morning. Beyond energy prices, commodity prices for fertilizer and helium — critical inputs for food production and semiconductor manufacturing — are also likely to continue climbing.
International Monetary Fund (IMF) and World Bank officials signalled last week that they would downgrade global growth forecasts and raise inflation projections, warning that emerging markets would be hit hardest.
There is some concern that the blockade risks drawing an economic response from China. It remains Iran’s largest oil buyer and has continued to receive shipments through the Strait of Hormuz since the conflict began. However, China holds strategic oil reserves of around 1.3 billion barrels – enough for roughly 4 months of consumption – and is the fifth-largest oil producer in the world. As a result, China is relatively well positioned to weather the near-term economic impact of a blockade.
At this stage, China is maintaining a diplomatic approach to resolving the crisis. However, if the situation becomes protracted, it could retaliate through restrictions on critical minerals essential for U.S. technology, AI, and defense sectors; limit agricultural imports such as soybeans; and impose high retaliatory tariffs.
A prolonged conflict would create challenges for central banks, both in terms of term yields and inflation expectations. Rising energy, fertilizer, and shipping costs would drive up broad-based inflation. The key question is whether policymakers will look through a temporary supply shock or raise rates to prevent inflation expectations from becoming entrenched in wages and prices. Given recent challenges in managing supply shocks, central banks are likely to lean toward avoiding a repeat of past missteps.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Discussions about housing affordability typically focus on supply, but a recent analysis from the San Francisco Fed highlights the critical role of demand dynamics, particularly income growth and population trends.
Our latest Housing Affordability Watch explores what this means for housing policy.
Read the full analysis: Housing Affordability: Is Supply the Only Story?
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
