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Bank of Canada: economy can add jobs and growth even as inflation slows

By Thomson Reuters Jun 24, 2024 | 1:14 PM

OTTAWA, June 24 (Reuters) – There is enough slack in the Canadian labor market to allow for growth and the creation of more jobs even as the inflation rate continues to decline, Bank of Canada Governor Tiff Macklem said on Monday.

Earlier this month the central bank trimmed its key policy rate for the first time in more than four years and said more cuts were likely if inflation continued to show it was on a sustainable path back down to the 2% target.

Macklem told the Winnipeg Chamber of Commerce that some people, in particular younger workers and newcomers, were finding it harder to obtain employment.

“With some slack in the economy, there is room for the Canadian economy to grow and add more jobs even as inflation continues to move closer to the target,” he said.

Macklem said the bank did not think a large rise in the jobless rate was needed to hit the 2% inflation target, a combination of factors he called a soft-landing scenario.

“It has always been a narrow path and we have yet to fully stick the landing,” he said

The fact that some newcomers are finding it harder to get a job could help the federal government, which is cutting back the number of people allowed in after levels spiked during the pandemic, driving up accommodation costs and population growth.

“(This job search difficulty) suggests the government has some room to slow the growth of non-permanent residents without tightening the labor market too much and causing significant labor shortages,” Macklem said.

The bank has long fretted about year-on-year wage growth but Macklem said there were signs it was starting to moderate.

He made no mention of a timeline for possible further easing. Before he spoke, money markets were expecting a 73% chance of another rate cut in July and a total of another three 25 basis point reductions this year.

The annual inflation rate slowed to a three-year low of 2.7% in April, marking four consecutive months of below 3%. The core measures of inflation – which are closely tracked by the bank – also continued to ease.

Statistics Canada is due to release the May inflation data on June 25.

The BoC’s next monetary policy decision is scheduled for July 24, when it will also update its economic forecasts.