The central bank’s great fear is a wage-price spiral, in which rising prices cause workers to demand higher wages, driving up costs and rising prices even further
In its two most recent quarterly monetary policy reports , the bank has published something of a scorecard for Canada’s job market, tracking various measures of labour activity—including unemployment and employment rates, vacancy rates, and business-reported labour shortages—against their historic highs and lows, along with the benchmark performance for each metric .
With almost every measure near historic highs, the labour picture is close to the tightest it’s ever been. Or, as the bank put it in the MPR released alongside its October rate hike of 0.5 percentage points, Canada’s job market “has surpassed maximum sustainable employment.” That, in turn, has helped push wages up over the past six months.
The good news—if you’re an inflation-fighting central banker—is that hikes are starting to take their toll, albeit slightly. Between the July and October MPRs, unemployment rose slightly to 5.2% from 4.9%. Hence the bank’s decision to go with a smaller hike than the three-quarter-point increase markets were expecting, which reflected its new view that the economy will “stall” in the coming months.
Still, as scorecards go, expect this one to remain volatile. It’s not just that labour-market measures like the unemployment rate are lagging indicators that follow growth and typically only climb sharply after a recession has already begun. But the participation rate—the only scorecard measure to be at the bottom end of its benchmark range—is likely to keep falling as Canada’s aging workforce retires, adding to a labour market that’sYour time is valuable.
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