Canada’s economy is uncertain. Overall, businesses are not investing as much as expected, but more jobs are being created than predicted. In the beginning of 2023, there were improvements in supply chains, which led to increased exports in the auto and agriculture sectors. However, if the US economy slows down as expected, it would negatively affect Canadian exports for the rest of 2023. Globally, central banks remain worried about inflation, so some regions may raise interest rates to reduce global economic demand. The Bank of Canada forecasts that Canadian economic growth will be 1.4% in 2023 and 1.3% in 2024.
Canada’s unemployment rate has remained steady at 5% since December 2022, which is historically low. However, there are still over one million people actively looking for work and another 400,000 who would like to work but are not currently searching for jobs due to various reasons. The number of job vacancies reported to Statistics Canada has decreased from over a million in the second quarter of 2022 to 855,000 in the fourth quarter. This means there is still a strong demand for workers, which gives workers more bargaining power.
Statistics Canada uses two sources to estimate wages each month: the Labour Force Survey (LFS) and the Survey of Employment, Payroll, and Hours (SEPH). According to LFS data, wages have been increasing by around 5% year over year, while SEPH data shows a slower increase of about 4%. In major collective agreements involving more than 500 people, wage adjustments are lower. The average first year adjustment is 1.9%, and the average annual adjustment is 2.8% for agreements ratified in the first quarter of 2023.
The consumer price index (CPI), which measures changes in the cost of goods and services, rose by 4.4% in April compared to the previous year. This is a slight increase compared to 4.3% in March, but still much lower than the 5.2% rise in February. Costs for food and shelter remain high. The Bank of Canada expects the CPI to drop to 3% by the middle of 2023 and return to 2% by the end of 2024.
The Bank of Canada raised interest rates from 0.25% in January 2022 to 4.5% in January 2023 and has kept them steady since then. They have stated that they are ready to increase rates further if necessary to achieve their target inflation rate of 2%.