Bank of Canada sees labor slack, looking through some inflation

Sat Oct 11, 2014 7:24pm EDT
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By Randall Palmer

WASHINGTON (Reuters) - Canadians would be working more hours if the nation's recovery were truly self-sustaining, Bank of Canada Governor Stephen Poloz said on Friday, casting a different light on the surge in employment in September.

Poloz, who will be presenting the central bank's Monetary Policy Report on Oct. 22, also said a lot of the price hikes Canada has seen recently were temporary and should be ignored in setting monetary policy.

Despite his cautionary notes, he said it was important to recognize that no country was forecasting a recession or deflation, and the International Monetary Fund's global forecast was balanced and largely positive.

He made his remarks to Reuters and a reporter for another news outlet on the sidelines of the IMF's fall meeting.

His comments on hours worked are important because Poloz views labor market slack as a key indicator that will help drive a decision on when to start hiking overnight interest rates. Rates have been frozen at 1 percent for four years.

Poloz welcomed a government report on Friday that showed the unemployment rate fell to 6.8 percent last month from 7.0 percent in August, as 74,000 new jobs were created, almost all full-time positions.

But he said the number of hours worked in September was only 0.2 percent higher than a year earlier.

"An economy that's actually growing in a self-sustaining way is going to generate quite a bit more draw on the labor market than that," he said. "When you start talking about slack, it's going to take a substantial, cumulative series of good reports to begin to put a dent in that."   Continued...

Bank of Canada Governor Stephen Poloz addresses reporters after a meeting of G-20 finance ministers and central bank governors during the IMF-World Bank annual meetings in Washington October 10, 2014.  REUTERS/Jonathan Ernst