TORONTO – Bank of Canada Governor Tiff Macklem said there is scope to slow the economy based on an “exceptionally high number” of job vacancies in the labor market.
In an interview aired on CBC Radio on Sunday, Macklem said the current inflation fight is the biggest test the central bank has faced since it started targeting inflation 30 years ago.
But he assured Canadians that monetary policy is working and he expected inflation to return to the central bank’s 2 percent target by 2024. Canada’s headline inflation rate dropped to 7 percent in August, with core inflation running at about 5 percent.
“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 percent in July, from a peak 6 percent 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 percent 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 percent. That’s what we have been what we call front-loading our interest rate increases,” Macklem added.