“There are three issues,” the man who would become Prime Minister Brian Mulroney told a roaring crowd in Nova Scotia 38 years ago. “The first is jobs, the second is jobs, and the third is jobs.”
After a decade fighting inflation and the high interest rates that required, the focus on “jobs, jobs, jobs” took Mulroney and his Progressive Conservative Party to a sweeping victory over the Liberals in the next year’s election.
Nearly four decades later, the Bank of Canada — and very likely Finance Minister Chrystia Freeland in her fiscal update next week — appear to agree that jobs and the economy are more important to Canadians than their fear of inflation.
Canadians like jobs and incomes
“It’s largely a good news story for many Canadians — many Canadians are getting jobs,” said Bank of Canada deputy governor Toni Gravelle, presenting the central bank’s economic progress report on Thursday to the Surrey Board of Trade in B.C.
“And them having jobs and incomes means there’s more demand for all the goods and all the businesses out there.”
Gravelle’s comments came in the context of an imminent decision by the federal government to renew the authority of the central bank to hold inflation within a target range by either raising or cutting interest rates.
Some analysts have said the fact that the government has delayed the decision so close to the January 2022 deadline, when the old mandate runs out, means the Liberals are considering making changes.
One possibility is that it could move toward U.S. rules, or the so-called dual mandate, which declares the central bank there must consider both the employment rate and inflation in making its interest rate decisions.
Bank of Canada deputy governor Toni Gravelle suggested Thursday that a strong economy was more important to Canadians than short-term inflation. (Bank of Canada)
Critics fear such a move could confuse markets.
And the longer inflation is allowed to run hot, the more likely wage-earners and businesses would expect inflation to continue, thus pushing wages and prices even higher — something Gravelle said he wanted to avoid.
When asked directly by reporters whether the new mandate would include a provision on jobs, and whether there had been any disagreement between the bank and the government, Gravelle smiled and refused to be drawn.
But he did say that employment had become an important consideration in recent bank thinking.
“I won’t speak to the mandate question at all. I just wanted to highlight that in terms of our labour market discussions, it’s not really new that we talk about labour markets,” said Gravelle.
“I think the new part, in some respects, is that we’re looking at a vast array of indicators given that this … pandemic is quite unique and has generated a kind of a complex recovery — one that we’ve never seen before.”
WATCH | Canada’s food prices expected to rise 5-7% in 2022:
Canadian food prices expected to rise 5-7% in 2022, report says
1 day ago
Duration 8:01
Canada’s Food Price Guide, an annual report published by Dalhousie University and the University of Guelph, suggests that next year could see the biggest annual increase in food bills on record. Sylvain Charlebois is the chief researcher on the report and a professor studying food distribution and security at Dalhousie University in Halifax. 8:01
Analysts who listened in on Gravelle’s speech, including TD economist Sri Thanabalasingam, describe him as taking a more “hawkish” point of view, meaning that he was in favour of cutting stimulus and raising interest rates more quickly than what was implied in Wednesday’s policy statement from the Bank of Canada.
Despite repeated worries about inflation, including a report out Thursday saying a Canadian family of four would likely pay $1,000 more for food next year, the Bank of Canada announced it would let things ride for a while yet.
But after hearing Gravelle’s remarks, Thanabalasingam said: “It appears the bank is setting the stage for more hawkish sentiment come January. Interest rate increases could follow soon after.”
Inflation risk remains
In responding to reporters’ questions, Gravelle, who sits on the governing council that makes interest rate decisions, admitted that the bank had become more focused on “upside risk” — meaning the risk of higher-than-expected inflation — because inflation was already so high.
“Because it is already above our one to three per cent range, we’re much more concerned,” he said.
Asked whether the Bank of Canada had abandoned the idea that inflation was transitory following U.S. Federal Reserve chair Jerome Powell’s declaration he was “retiring” the term, Gravelle insisted that whatever it is called, Canada’s central bank remains convinced current high levels of inflation will disappear by the end of 2022.
The deputy governor spent most of his speech reiterating the bank’s view that current inflation was not caused by rates that are too low but by distortions caused by the pandemic and its recovery. A consumer shift back to buying services, such as flights and restaurant meals, would relieve price pressure on physical goods, Gravelle said, and businesses would find ways to get the kinks out of supply chains.
It would just take time.
Waiting for Washington
If that does not happen, Gravelle insisted that the bank would use its tools — read interest-rate hikes — to pull inflation back down toward its two-per-cent target range.
But independent of any action by Ottawa to change the central bank’s mandate, Gravelle and his governing council have another constraint: Inflation is an international phenomenon.
Despite repeated insistence that it operates independently, the Bank of Canada simply cannot act alone to defeat what is a global problem. Hiking rates significantly before the U.S. central bank decides to do the same thing would distort the price of the loonie, and thus trade — without solving the problem.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
