Bank of Canada Gov. Macklem Says Labor Market Needs to Cool – Canada’s labor market must weaken in order to help limit domestic inflationary pressures and bring the consumer price index back down from excessive levels, according to the country’s top central banker on Friday. Tiff Macklem, Governor of the Bank of Canada, told reporters from Washington that interest rates will need to rise to contain annual inflation, which is currently at 7%, considerably above the central bank’s target of 2%.
Underlying inflation, which excludes volatile-priced items such as food and fuel, shows no signs of dissipating, he adds. The central bank, which has hiked its main interest rate by three percentage points this year, is scheduled to release its latest rate-policy decision on Oct. 26. “The labor market is overheated. Businesses can’t find enough workers. Vacancies are high,” said Mr. Macklem, who attended the annual meeting organized by the International Monetary Fund and World Bank.
According to data released last week, Canada’s unemployment rate fell in September from 5.4% to 5.2%, or 4.1% when using US Labor Department methodology, and annual pay gains increased by more than 5% for the fourth consecutive month. Hiring returned in September after three months of losses, with net job additions up 2.2% over a 12-month period. “We actually need to see some cooling in the labor market,” Mr. Macklem said. The tight labor market, he said, “is generating domestic price pressures. That’s not sustainable. There isn’t a trade off here.”
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His statements to reporters echoed sentiments from a speech Mr. Macklem gave last week in Halifax, Nova Scotia, in which he stressed the central bank had no intention of quitting its rate-hiking campaign, which has been one of the most aggressive among developed-world economies. The Bank of Canada boosted interest rates by a full percentage point in July and a quarter point in September, bringing them to their current level of 3.25%. Most economists anticipate a half-point increase later this month.
Canada’s rate policy is now restrictive, or above the neutral rate, which the Bank of Canada considers to be between 2% and 3%. “We’ve signaled that we think further interest rate increases are warranted so I think you can expect that we’re going to go further” into restrictive territory, Mr. Macklem said. He noted that how much higher rates would rise and how long they will remain high will be determined by how the economy and inflation evolve.
The central bank will release its newest quarterly economic forecast, along with its seventh rate decision of 2022, later this month, and Mr. Macklem stated, “I think you can expect to see pretty modest growth,” when the new outlook emerges. In its third-quarter forecast, the Bank of Canada projected a 3.5% expansion this year, and 1.8% in 2023. Private-sector economists, meanwhile, predict a recession is likely next year, starting in the first quarter, as Canadians curtail spending due to inflation and higher debt-servicing costs.
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