Canada jobless rate hits record low

Canada's jobless rate inched down to a new record low after adding more jobs than expected in May, and wage growth picked up steam, official data showed on Friday, bolstering the case for an even larger rate increase next month by the central bank.

Canada added a net 39,800 jobs in May, entirely in full-time work, beating expectations for a gain of 30,000, Statistics Canada data showed. The jobless rate dropped to 5.1 per cent, beating predictions it would remain at 5.2 per cent.

The average hourly wage of permanent employees rose 4.5 per cent, accelerating from 3.4 per cent April and in-line with gains seen in 2019, when the labor market was also extremely tight.

The result is likely to bolster calls for the Bank of Canada to act more aggressively at its July interest rate decision.

"Certainly, this does come down on the hawkish side of the ledger and it is going to add to the speculation around a potential 75-basis-point move next month," said Andrew Kelvin, chief Canada strategist at TD Securities.

"It's another signal to the Bank of Canada that they are a little bit behind the curve on their rate hikes."

The central bank hiked to 1.5 per cent from 1.0 per cent last week, its second consecutive 50-basis point hike, and said it would act "more forcefully" if needed to curb inflation, which is running at a 31-year high.

Money markets see about a 60 per cent chance the bank will increase by 75 bps on July 13 and expect rates to hit 3.25 per cent by-year end, up sharply from 0.25 per cent in January.

For economists, the bigger question is whether inflation moved above 6.8 per cent in May to hit a four-decade high. That data is due later this month. US inflation accelerated to 8.6 per cent in May, driven by rising gasoline and food prices.