The Bank of Canada is expected to raise interest rates over the course of the year.
Bank of Canada senior deputy governor Carolyn Rogers said last week that the central bank is wary of a wage-price spiral as workers take advantage of a record number of job vacancies to insist on salary increases that match this year's spike in the cost of living. Employers might try to recover higher labour costs by charging more for goods and services.
The Financial Post is part of Postmedia Network Inc. There was an issue with signing you up. Try again.
Rogers said that the labour market was tight, which helped the central bank determine that demand has exceeded the economy's ability to keep up with orders. Inflation was at an annual rate of 7.6 per cent in July, slower than the previous month, but still above the Bank of Canada's two per-cent target.
Rogers said that workers are looking at the rate of inflation and what it is doing to their purchasing power, their budgets, and they are looking at the same tight labour markets.
The Bank of Canada raised its benchmark rate by three quarters of a percentage point on Tuesday, the second increase in a row. One of the reasons that the governor is raising interest rates so quickly is to keep expectations from getting out of hand, so that inflation won't get out of hand.
Rogers said that "entrenchment of inflation expectations would be damaging to the economy."
Rogers said it was not the central bank's place to give advice on wages. Macklem made comments earlier this summer that were seen by some union leaders as encouraging employers to suppress wages.
Macklem said that businesses should not plan on the current rate of inflation staying. Don't make that into long-term contracts. Don't make that into wage contracts. It will take some time, but you can be sure that inflation will come down.
Macklem was telling his audience to believe him when he said the Bank of Canada would do what was necessary to get inflation under control even if it meant courting a recession.
The economy is not growing as fast as it used to. The Canadian economy lost 40,000 jobs in August, which resulted in the unemployment rate rising to 5.4 per cent, a far cry from the 15,000 job gain that Bay Street economists were expecting.
The decline was the third in a row, which is usually indicative of a downturn. The average hourly wage rate rose more quickly than analysts anticipated.
Rogers said that wages would be watched closely. There is a need for supply and demand to come back in balance. The pressure off wages will be taken care of.
The email address is shughes@postmedia.
All Rights Reserved © 2024
