Tiff Macklem, Governor of the Bank of Canada, stated that there is potential for the economy to stall due to a “exceptionally large number” of job openings in the labor market.
In an interview broadcast on CBC Radio on Sunday, Macklem stated that the present inflation battle is the most difficult the central bank has encountered since it began targeting inflation 30 years ago.
He did, however, reassure Canadians that monetary policy is functioning, and that inflation will return to the central bank’s 2% objective by 2024. In August, Canada’s headline inflation rate fell to 7.0%, with core inflation hovering around 5%.
“We need to cool the economy, (but) we don’t want to over- cool the economy,” Macklem said.
“When we look at the economy right now, there is an exceptionally high number of vacant jobs … that’s a clear signal that there is scope to slow the economy, without a lot of people put out of work,” he added.
Canadian employers were actively looking to fill nearly 1 million jobs as of July, data released on Friday showed, while the job vacancy rate dropped to 5.4% in July, from a peak 6.0% in April 2022.
The Bank of Canada has raised its benchmark interest rate by 300 basis points since March, one of its steepest and fastest tightening cycles ever. Economists and money markets are leaning toward a 50-basis-point increase on Oct. 26.
Macklem said parts of the economy that are sensitive to interest rate increases are starting to slow.
“Let me be clear, what we don’t want is … inflation and wages to become unmoored to our 2% objective, because if that happens, then we are actually going to need to slow the economy a lot more to get the inflation back to 2%. That’s what we have been what we call front-loading our interest rate increases,” Macklem added.