Summary Of Macro Developments Across The BoC's Four Key Areas

The below summarizes macroeconomic developments since the BoC's July decision in the four key areas that it has been focusing on, touched upon in more detail in the upcoming MNI BoC Preview for Wednesday's decision.

• i) Excess demand evolution – outright dovish

The BoC has put significant weight on excess demand recently and GDP growth came in notably softer than expected in Q2 along with at best no momentum heading into Q3. The Bank at its July forecast round had pushed back the expectation of a move to excess supply by six months to early 2024 but the largely flat Q2 print will likely see it expecting this earlier now.

• ii) Inflation expectations – neutral to dovish

The market-based 5Y inflation breakeven has increased slightly from the 2.00% ahead of the July decision but only to 2.05% and has remained well anchored throughout the summer. One of the few surveys did however see CFIB year-ahead wage plans of small businesses slow from 3.3% to 3.0% for the lowest since Mar’21.

• iii) Wage growth – hawkish

Realized hourly wage growth surged back in July with measures running at circa 5% Y/Y, clearly the strongest element of the labour force survey which otherwise saw a surprise decline in employment and the unemployment rate continuing to drift higher.

• iv) Corporate pricing – unclear

As always, an opaque category that’s hard to put a finger on latest developments, especially for a meeting that isn’t preceded by the Bank’s Business Outlook Survey which can sometimes shed light on frequency of price changes.