On Wednesday, Jan. 17, the Bank of Canada announced that it was raising the target for the overnight rate by .25 basis points, from 1.00% to 1.25%. With this adjustment to the overnight rate, the third rate increase in the previous six months, the Bank of Canada seeks to put the brakes on what has been seen by many as better than expected economic growth. Although, in late December, Stephen Poloz, Governor of the Bank of Canada, had committed to running the economy “hotter, so it uses up excess capacity that still is in the labour market,” it appears the recent data indicated the economy was getting a little “too hot.” While interest rates remain accommodating (serving to expand the economy), the intention of the hike is to nonetheless slow down the pace of economic activity. Although the bank pointed to increasing household debt-ratios and uncertainty regarding the future of NAFTA as causes for concern, it nonetheless justified this increase on the basis that intervention was needed in order to ward off future inflationary pressures arising from the economy reaching its “capacity limits.” The Steelworkers, however, are disappointed with the BoC decision to increase the overnight rate at this crucial moment; just as wages are beginning to (very moderately) increase and the benefits of economic growth beginning to “trickle down” to workers, after being flat for much of the “boom” in early 2017, this rate increase risks slowing or even halting that growth.
While economic growth in 2017, particularly through the first two quarters, was impressive, placing Canada at the top of the OECD, growing at a 4% annualized rate, it eventually settled down to a more modest, but impressive 3% for the year. Yet, despite this robust economic growth, wage growth was flat for much of the year. Although wages began to rebound in Q3, it was not until the next quarter that it accelerated, growing 2.9% until the end of the year and reaching a 2.7% increase year over year.