Growing wages may force Bank of Canada to raise interest rates again
Wages continued to grow in September, extending a trend that will help households cope with higher prices, but could also force the Bank of Canada to hike interest rates again to reverse stubbornly strong inflationary pressure.
Average hourly wages rose five per cent from September 2022, according to Statistics Canada’s latest monthly tally of the labour market, marking the seventh consecutive month that paycheques increases faster than prices, as measured by Statistics Canada’s consumer price index.
Canadian employers also added some 64,000 positions last month, triple the Bay Street consensus, according to a Bloomberg survey of professional forecasters. The jobless rate was unchanged at 5.5 per cent, which is up from the recent low of around five per cent, but still a historically strong number that suggests the economy continues to have decent momentum.
Despite persistent worries that higher interest rates risk causing a recession, the Bank of Canada insists the bigger worry remains inflation. The consumer price index accelerated to a year-over-year increase of four per cent in August from 3.3 per cent in July and 2.8 per cent in June.
Bank of Canada governor Tiff Macklem is mandated to keep inflation growing at a year-over-year pace of two per cent, a target the central bank has failed to hit since before the pandemic. Macklem has said repeatedly that if he doesn’t crush inflation now, expectations of elevated price increases will become entrenched, making inflation that much more difficult to control later.
The Bank of Canada is next scheduled to make a decision on interest rates later this month.
Charles St-Arnaud, chief economist at Alberta Central and a former Bank of Canada staffer, said in a note that the
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