Canada’s labour market rebounded in April, adding more than 90,000 jobs, a staggering number of new positions after four consecutive months of little change.
Now, a notable economist says that unexpected growth isn’t good news for the Bank of Canada, and could mean that cuts to the key interest rate could be further off than expected.
“The Bank of Canada… is trying to re-attain the 2 per cent inflation target,” Don Drummond, a professor at the School of Policy Studies at Queen’s University and former chief economist for TD Bank, told CTV News Channel. “And boy, that’s a big increase in employment.
“Life in the Canadian economy”
Canada’s economy added nearly five times the number of jobs that were forecast for the month — while the unemployment rate held steady at 6.1 per cent.
Drummond says the latest data shows there’s “some revised life in the Canadian economy” and that it’s proving to be harder to “kill the beast” of inflation than originally expected.
Many analysts expected the policymakers at the Bank of Canada to cut its key lending rate at in June – however the new numbers have quickly put a damper on the market speculation.
“You do have to cool the economy to a certain extent,” Drummond told CTV News Channel host Roger Petersen on Friday. “That seems to be kind of difficult… at least through interest rate increases.”
“Frustrating” data for Bank of Canada
The job gains are the largest since January 2023, and according to Statistics Canada, are from a combination of both part-time and full-time work.
Drummond says that it’s a perfect example of the “difficulty of conducting monetary policy” because markets are already incorporating an “easing of the monetary policy” even though it’s yet to take place.
“The anticipation of interest rate declines is narrowing some credit spreads.”
So as it proves harder for the Bank of Canada to hit its 2 per cent inflation target, what would cause policymakers to consider a rate cut?
“A more modest increase in real wages,” according to Drummond. “I hate to say it, but probably a somewhat weaker labor market.”