(OTTAWA) As the threat of a possible recession raises fears of rising unemployment, Bank of Canada Governor Tiff Macklem says job losses this time are unlikely to be as severe as those that accompanied past economic downturns.
So far, the Canadian labor market has remained strong despite growing expectations of a slowdown on the horizon.
“We don’t expect a big increase in unemployment like we’ve seen in previous recessions,” Macklem told students and researchers at Metropolitan University of Toronto on Thursday. “We don’t expect high unemployment by historical standards. »
The governor said the current low unemployment rate in Canada was unsustainable and was contributing to the highest inflation seen in decades.
According to him, the Canadian labor market must be rebalanced to stabilize inflation.
Canada’s unemployment rate held steady at 5.2% last month as the Canadian economy surprised forecasters by adding more than 100,000 jobs. This strong data came after four months of job losses or slight job growth.
Mr. Macklem pointed out that companies struggling to find workers could not meet the demand for goods and services in the economy, which was fueling rising prices.
“Stresses in the labor market are a sign of the widespread imbalance between supply and demand that is fueling inflation and harming all Canadians,” he said in the text of a speech intended for the Public Policy Forum in Toronto.
This imbalance, he continued, is partly attributable to an aging population that is increasing retirement levels as well as low immigration during the pandemic.
To align demand and supply, Macklem said a slowdown was needed.
“What does this mean for Canadian workers? Obviously, such an adjustment will not be painless,” he continued.
Responding to Statistics Canada’s latest jobs report, Macklem said it’s not unusual to see fluctuations in the number of monthly jobs.
“What I take away from the last few months is that we continue to have an economy in excess demand. »
Not a replacement for interest rates
In his speech, the governor predicted that policies that increase the number of available workers would help dampen inflation, noting that immigration was one of them.
Other policies such as improving universal child care will help increase the proportion of women in the workforce, but he noted that will take time.
However, the governor stressed that these policies are not a substitute for using interest rates to slow demand in the economy and slow inflation.
“New workers will earn new incomes, and there will be more spending in the economy,” Macklem said. It is for this reason that increasing supply, while a valuable tool, cannot replace the use of monetary policy to moderate demand and bring it back into balance with supply. . »
Last month, the Bank of Canada raised its key rate for the sixth consecutive time this year. The central bank signaled that it was nearing the end of what has been one of the fastest rate hike cycles in its history.
Economists expect one or two more interest rate hikes to come.
The rate hikes are a response to inflation, which has reached its highest level in nearly four decades. In September, annual inflation was 6.9%, well above the central bank’s target of 2.0%. However, it has been steadily declining since hitting a peak of 8.1% in June.
Statistics Canada will release its new report on the consumer price index on Wednesday, which will shed light on the evolution of inflation in October.
Macklem said the central bank would pay particular attention to core measures of inflation, which tend to be less volatile than that of headline inflation.