During April, May, and June this year, personal bankruptcies increased 23.5 percent and business bankruptcies were up 36.9 percent, year on year, Canada’s Office of the Superintendent of Bankruptcy reported, blaming sharply higher interest rates for the failures.
The Bank of Canada has hiked its key interest rate steadily over the past year, ratcheting up stress on businesses also dealing with a slump in consumer spending, the Canadian Association of Insolvency and Restructuring Professionals said.
Later this year, the number of personal bankruptcies will exceed that of the 12 months before the COVID War began, the group predicted.
Canada’s labor market shrank by 6,400 jobs in July, lifting the unemployment rate to 5.5 percent.
The loss surprised analysts, who had foreseen a gain of 21,100 jobs, and bolstered expectations that the Bank of Canada (BoC) will suspend further interest rate increases.
The country’s inflation rate fell to 2.8 percent in July from 3.4 percent in June, bringing it within reach of the central bank’s 2-percent target.
Futures markets have dropped their odds of another increase when the bank’s governing committee meets again on 6 September. Speculators are now seeing a 28-percent chance of a rate boost, down from 34 percent before the job losses were announced, but still a 60-percent chance by year-end, compared to 80 percent before the news.
Canada’s jobless rate has crept up 0.6 of a percentage point in the last 12 months.
Doug Porter, chief economist at BMO Capital Markets, told Bloomberg there were other clear signs the economy is starting to soften.
“I think [the BoC’s] conclusion from this would be that it’s probably not a bad idea to pause on the rate hike front,” Porter added.
Analysts at Desjardins, a Canadian financial services firm, went further, saying “today’s data reinforce our view that the central bank is done raising rates for this cycle.”
Stephen Brown, Capital Economics’ deputy chief economist for North America, agreed. “The softer labor market data support our view that the Bank is unlikely to follow through with current market pricing by raising rates further,” he told Bloomberg.
TREND FORECAST: Canada will be a laboratory experiment for other central banks and perhaps a cautionary example.
Other central banks will study Canada’s trajectory of rate increases to see the lag time between hikes and their impacts to try to judge whether their own rate bumps have been enough. They also will use Canada as a yardstick to see if they, too, can stop raising rates.