The negative impact of lower oil prices is being felt in many sectors of the Canadian economy – from housing and the prices of goods and services, to employment levels, according to Russell Investments’ Second Quarter 2015 Strategists’ Outlook.

“The most immediate shock was to the once-hot housing markets in the Prairies, where home sales have declined and price increases have moderated,” said Shailesh Kshatriya, associate director, client investment strategies at Russell Investments Canada Ltd., who authored the Canada Market Perspective section of the global report. “This has occurred despite the Bank of Canada’s reduction in its target interest rate at the start of the year. Ironically, this same rate reduction may further support the buoyant Toronto and Vancouver real estate markets.”

At the same time, the prices of many goods and services other than energy have been rising due to the lower value of the Canadian dollar, according to the most recent outlook. “When you exclude the price of gasoline, we saw a 2.5% rise in inflation. We believe the BoC will tolerate inflation approaching the upper threshold of its 1-3% inflation band in order to dispel worries about potential tightening of monetary policy,” added Kshatriya.

The report notes that employment will be the indicator most closely monitored going forward, and if labour market slack persists or accelerates over the next several months, an additional cut in the target rate should not be ruled out.

Kshatriya believes the implications of the recent reduction in capital expenditures by the resource sector, and how that might impact employment, are more disconcerting. “This comes at a time when it’s unclear if employment has, in fact, improved as much as is implied by the official unemployment rate of 6.8%,” Kshatriya said. “When using the labour market indicator, the unemployment rate is closer to 7.5%.”

The report also notes that five months ago the observed industry consensus expected earnings to grow a robust 20% in 2015, but that has since been marked down dramatically to -7%.

With regards to the economy, “Although we expect modest growth, the ambiguity due to low oil prices keeps us cautious, but positive, on the business cycle over the medium term as recession is not our central scenario,” added Kshatriya.