Unraveling the Bond Between Rate Hikes, Inflation, and a Tight Labour Market | National Newswatch

After pausing increases to its overnight rate last January, the Bank of Canada is expected to announce a second consecutive hike this Wednesday.

One bit of good news is that the U.S. Federal Reserve’s Global Supply Chain Pressure Index , which measures supply chain disruptions, peaked in December 2021 – coinciding with the early uptick in inflation — and has since returned to pre-pandemic levels. Compounding the challenge for the Bank of Canada, government support programs designed to mitigate the impacts of significant pandemic employment losses helped maintain the demand for goods even as many services businesses were forced to close.

The Bank of Canada’s interest rate policy affect the labour market by increasing the cost of borrowing. A sign that the central bank’s strategy is working, although it remains tight overall, the Canadian labour market is exhibiting some signs of loosening. Job vacancies peaked in May 2022 but have since declined to the lowest level since July 2021. After hovering near a record low for six months, the unemployment rate nudged up for two consecutive months, reaching 5.4 percent in June.

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Posthaste: How another Bank of Canada rate hike will affect the housing marketAfter hiking rates rapidly to 4.5% over the past year, the BoC paused in March and April before adding another 25 basis points in June
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