BoC Preview: Balancing Oil and Slack

Research evidence excerpt

BoC Preview: Balancing Oil and Slack

IdeaM

Exhibit 5: Total employment has fallen over 2026 Exhibit 6: Wage growth has been volatile due to compositional

issues, while services inflation has fallen

60.0 Cumulative Changes in Employment in 2026 (1000s)

6.00%

40.0 Full-Time Part-Time Total

20.0 5.00%

0.0

4.00%

-20.0

-40.0 3.00%

-60.0 2.00%

-80.0 Wages Growth (%Y) CPI Services (%Y)

-100.0 1.00%

-120.0 0.00%

-140.0

Jan/2026 Feb/2026 Mar/2026 Apr/2026 May/2026 Jun/2026

Source: StatCan, Morgan Stanley Research

For the Bank, the report cuts in both directions. Stabilization in employment and

unemployment reduces the urgency for easing. But the absence of stronger full-time

hiring, cyclical-sector employment, and sequential wage momentum provides little

evidence that labor demand is becoming inflationary. We therefore read the June data as

another reason to remain patient, not as a reason to tighten.

(3) Business outlook: excess capacity continues to constrain pricing power

The recent Business Outlook Survey provides perhaps the clearest directional evidence

that the increase in inflation does not reflect an overheating domestic economy. The new

BOS activity and price indicators diverged: the activity indicator declined as sales

expectations softened, while the price indicator rose because of higher oil-related input

costs. The Bank explicitly characterized that combination as consistent with a negative

supply shock.

Most firms continue to report spare capacity. A majority said their existing physical

capacity and workforce were sufficient, the share that would have difficulty meeting an

unexpected increase in demand moved further below its historical average, and reports of

binding labor shortages declined. Future sales indicators now sit just below their historical