Full employment, the Bank of Canada's mandate, and rising inflation: an economic outlook


The economic state of affairs for Canada right now is an interesting mix of rising prices, decreasing unemployment, and strong demand for export goods. There are both positive and negative factors at play in Canada’s economic recovery from the pandemic.

Craig Klemmer, principal economist at Farm Credit Canada says that we’re seeing different levels of reopening and access in the economy, and that is creating some opportunity for certain sectors. Service industries, for example, have some real opportunity to add to GDP growth, and Canadians have more savings to spend than in previous years.

But all of this is in the face of rising inflation. The Bank of Canada’s new five-year mandate includes discussion of an inflation target of 2 per cent, with an a range of one to three per cent, in terms of the tolerance.

Core inflation, Klemmer says, is sitting around 2.9 per cent (that’s inflation without food and energy costs included), which is less alarming, perhaps, but still ahead of where we’d like it to be. (Story continues below)

There are several other things at play in the economy right now, including supply chain disruptions both domestically and internationally, and a return to strong employment numbers. Still, there are gaps in the employment picture — there is high unmet demand in some of the more promising sectors, such as agriculture and food and service industries.

Klemmer says that arguably, Canada is already sitting at “full employment,” and is defined as someone who is looking for a job will find one. In Canada, full employment is somewhere in the five to six per cent unemployment range, which is where we are at now.

He adds that there is plenty of grumbling about increased costs, and that, unfairly, farmers are bearing the brunt of some of that complaining. Farmers, yes, are getting higher prices for commodities right now, but all the input costs have also reason. Consumers need to realize that higher prices don’t always equate to higher profitability, Klemmer says.

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