Macklem says Canada’s unemployment rate contributes to record high inflation
According to the Bank of Canada governor Tiff Macklem, Canada’s low unemployment rate is actually not sustainable. Moreover, it contributes to a record-high inflation.
During his speech before students and researchers at Toronto Metropolitan University on Thursday, the governor noted that the national job market needs to be balanced in order to stabilize inflation.
Macklem pointed that businesses facing difficulties with finding workers can’t keep up with demand for goods and services.
“Tight labour market conditions are considered to be a symptom of the general imbalance between demand and supply that is supporting inflation and affecting all Canadians,” – he added.
In October, Canada surprised experts by adding more than 100,000 jobs while the unemployment rate remained unchanged at 5.2%. The strong job results followed four months of declines or small increases in employment.
In Macklem’s opinion, the policies aimed at increasing the number of workers could ease the inflation, and higher immigration is one of them.
While economies all over the world slow down in response to growing interest rates, Macklem believes Canada will handle it better than other countries partially due to strong immigration levels.
Such policies, as the expansion of universal childcare, will also help increase the share of women in the workforce, he noted, but it will take time.
Nevertheless, he stressed that these policies can’t substitute using interest rates in terms of reducing the inflation.
“New workers will have new incomes, and that will raise spending in the economy,” – Macklem said. “That’s why although raising supply is necessary, it still can’t be a substitute for monetary policy tools.”
In October, the BoC increased its key lending rate for the 6th time in a row this year. The Bank has made it clear that we are approaching the end of one of the fastest rate-hike cycles.
Now, economists predict 1-2 more rate increases in the nearest future.
These rate hikes are the reaction to inflation reaching the highest level in almost 40 years. In September, we saw 6.9% inflation, exceeding the Bank’s target of 2%. However, it has been going down since its 8.1% peak reported in June.