The Bank of Canada cited continuing strength in the labour market in announcing its decision to raise its key overnight lending rate to 4.75 percent.
By Josh Rubin Business Reporter
Friday, June 9, 2023
A help wanted sign is seen in a storefront along Queen St. W. in Toronto. Strong job growth and a tight labour market, according to conventional economic theory, lead to higher wages, something the Bank of Canada has argued is helping drive inflation.
The Canadian labour market is finally cooling off, at least a bit.
In its Labour Force Survey released Friday morning, Statistics Canada said 17,000 jobs were lost in May, the first time in nine months there was a net job loss. The unemployment rate rose for the first time since last August, to 5.2 per cent.
A consensus of economists surveyed by Bloomberg had expected the economy added 20,000 jobs.
Just two days earlier, the Bank of Canada cited continuing strength in the labour market in announcing its decision to raise its key overnight lending rate by 25 basis points — a quarter of a percentage point — to 4.75 per cent.
“The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour,” the Bank said in announcing its increase, and dropping hints it would hike rates again at its July meeting.
Last March, the bank began an aggressive rate-hike campaign in a bid to drive inflation down, pushing its key overnight rate to 4.5 per cent from 0.25 per cent.
The theory is that by making it more expensive to borrow money, consumers — and businesses — will spend less, driving prices down and slowing the economy.
In January, a hike of 25 basis points (a quarter of a percentage point) came with a statement from bank governor Tiff Macklem that it was pausing hikes — at least temporarily.
But a steady stream of stronger-than-expected economic data — including several straight months of strong jobs growth — put an increase back on the table.
A tight labour market and strong job growth, according to conventional economic theory, leads to higher wages, something the Bank of Canada has argued is contributing to inflation.
In May, average hourly wages were 5.1 per cent higher than they were a year ago, Statistics Canada said Friday.
Josh Rubin is a Toronto-based business reporter. Follow him on Twitter: @starbeer
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