Changes In The BOC's Four Key Areas Since The June Meeting

A snapshot of the four key themes that the Bank of Canada is focusing on and how they've changed since the Jun 7 decision. Taken from the MNI BoC Preview, which can be found here.

i) Excess demand evolution – slightly hawkish

Growth has held up surprisingly well, especially if the advance May GDP proves accurate, leaving us on track for another stronger than expected quarter which delays the much-needed period of more notably below trend growth. Labour supply has however also increased strongly on immigration.

ii) Inflation expectations – dovish

Clearly some progress, with short-term expectations still elevated but moving towards more typical levels, especially in the consumer survey. However, the Bank would have had an early indication of these developments.

iii) Wage growth – dovish

The moderation in realized hourly wage growth was the softest aspect of the June employment report. Year-ahead expectations have cooled somewhat but remain elevated on a historical basis.

iv) Corporate pricing – unclear, maybe marginal improvement

A far more opaque category, where the Bank will have a better understanding from its liaison programmes, but the Q2 Business Outlook Survey noted that price-setting behaviour has yet to normalize fully (“Although firms’ price-setting behaviour is gradually shifting closer to what it was before the pandemic, businesses continue to expect wage and price increases to be larger than normal.”)