The tail end of last week brought new, and very loaded, labour market data. Statistics Canada reported on Friday that the Canadian economy added 60,000 jobs in June, driven largely by gains in full-time work. This was the largest monthly increase since January.

Now, some economists are saying that the considerable lift in job numbers, coupled with the months-long rise in housing resales and an anticipated 0.4% increase in real GDP, makes a strong case for another interest rate hike at tomorrow’s Bank of Canada (BoC) meeting. In fact, Desjardins Economist, Marc Desormeaux, writes that a hike is ‘all but assured’ in a note from last week.

If another hike is indeed realized, July’s meeting will mark the tenth interest rate increase since the bank began hiking in March 2022.

Whether or not another hike is necessary -- or helpful, for that matter -- is up for debate.

READ: What Will Be The BoC’s Next Interest Rate Move? Some Experts Say It’s A “Coin Toss”

In a recent report, CIBC Senior Economist Andrew Grantham cautions that further rate hikes could be a misstep on the bank’s part.

“It is possible that past rate hikes are already having a bigger impact on demand than perceived, but we are focusing too much on growth rates rather than the level of spending,” he writes, pointing more specifically to a 15% increase in spending on interest-rate-sensitive items -- think household appliances, furniture, autos, travel services, restaurants -- since the first hike was delivered in March of last year.

Focussing solely on that 15% growth rate, Grantham acknowledges that it’s easy assume that rate hikes are yet to meaningfully dampen consumer spending.

“The last time interest rates were increased in 2017/18 (and a lot more gradually), spending on these items had already started to slow,” he says. “However, looking at the level relative to 2019 tells a very different story, with the volume of spending in these interest rate sensitive areas still 1% below Q4 ’19 levels. That would obviously be even worse in per-capita terms, given the strong population growth seen recently, and represents a roughly 10 to 15% shortfall relative to its pre-pandemic trend”

July interest rate hike cibcStatistics Canada, CIBC

Some of those interest rate-sensitive sectors, mentioned earlier, were hit hard by pandemic-related restrictions or supply chain issues -- however, chalking up spending growth in those areas to pent-up demand “would be a bit misleading,” says Grantham.

“Households aren’t on average eating out more often or going on an extra vacation to make up for the pandemic years. Rather, it is simply a normalisation of activity following a very abnormal period.”

While sectors still have supply chain issues to contend with, Grantham notes that such issues are resolving and “may no longer entirely account” for the drop off in spending compared to pre-pandemic trends.

“In other words, rate hikes may already be working to slow demand, and the true test in terms of growth rates is still to come,” Grantham concludes in last week’s report. “If rate hikes have already been working to cool demand more than is apparent by simply looking at growth rates, history could show that the recent Bank of Canada rate hike (and any subsequent moves) was at best unnecessary, and at worst a mistake.”

The next interest rate decision is slated for tomorrow, Wednesday, July 12, 2023. A monetary policy report is also scheduled for release at that time.