The final mile on the road to achieving the Bank of Canada’s 2% inflation target will not be an easy one. After witnessing inflation surge to a four-decade high in 2022, most of the subsequent disinflation has been a result of falling oil prices and global supply chain improvements. Despite the Bank signalling a halt in rate hikes, domestic indicators of capacity and inflation pressure remain a concern. Key inflation indicators like CPI-trim, though declining, remain well above 3%. Additionally, the year-over-year change for average hourly earnings has been running around 5%, and more than half of businesses expect inflation to remain above 3% over the next two years.
Despite a slowing economy and a negative output gap, the Bank remains cautious in order to preserve its credibility in managing inflation. The last thing it wants to do is signal the expected timing of a rate cut, as this could cause financial markets to react and lead to a premature easing of financial conditions.
Latest employment market data
In February, the labor market added 40,700 jobs, with full-time employment rising by 70,600, while part-time positions decreased by 29,900. Despite this, the unemployment rate edged up by 0.1% to 5.8%, while the participation rate remained unchanged at 65.3%. Compared to the previous year, the unemployment rate is up 0.7%. Much of this increase in unemployment stems from prolonged job searches among new labor market entrants. Additionally, there has been a sharp decline in hiring demand, with job vacancies running 25% below levels seen a year ago. This shift is altering the balance of bargaining power in wage negotiations, tilting it away from workers.
Wage growth, as indicated by the labor force survey data, remains firm but dipped slightly to 5.0% year-over-year in February from 5.3% in January. Other estimates derived from employer payroll data suggest a more pronounced slowdown in recent months, although this deceleration has not yet been reflected in Statistics Canada reports.
While the labour market report shows there has been progress on the wage front, wage growth remains too high to align with the Bank’s 2% inflation target, especially when productivity is so low. As the labor market continues to show greater balance, the Bank will require further evidence of moderation in wage growth before considering a reduction in interest rates.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
In their quest to create aesthetically pleasing and functional spaces that meet the needs of residents, urban planners and politicians often fail to consider the economic dynamics that shape development. One crucial aspect often overlooked is that cities are primarily labour markets. A well-functioning labour market is essential for cities to thrive and to enable urban amenities such as public libraries and museums. This oversight of market forces leads to poorly conceived urban regulation, impacting the long-term success and viability of projects.
Using the planning decisions surrounding a deteriorating Hamilton church as an example, the latest instalment in our Housing Affordability Watch examines the need for urban planners to adopt a more comprehensive approach that integrates economic sustainability alongside architectural and community needs for successful, long-term urban projects.
Read the full article here: The Façade of Affordable Housing
Independent Opinion
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