OTTAWA (Reuters) - Wage growth in Canada accelerated in August at its fastest pace in 10 months, adding credence to the central bank’s interest-rate increase this week and lifting expectations that it will hike again by the end of the year.
Average hourly pay rose 1.7 percent last month from a year earlier, Statistics Canada said in its jobs report on Friday. That was the strongest annual increase since October.
As in many other countries, wage growth in Canada has been muted despite solid gains in the labor market over the past year, puzzling economists and policymakers.
“It’s been a bit of a mystery why, with the Canadian economy growing so strongly and the labor market tightening, we weren’t seeing more indications of inflation pressures building,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.
“Today’s report is suggesting that pressure is starting to rise, and it certainly provides validation in terms of the bank’s move this week.”
The Bank of Canada raised rates on Wednesday for the second time this year and left the door open to more. Its statement said the labor market still had excess capacity, with wage pressures more subdued than history would suggest.
The employment report, which also showed the economy created a greater-than-expected 22,200 jobs last month, prompted markets to raise expectations that the central bank will raise rates in December. [CAD/]
Markets see a 76.2 percent chance of a rate hike in December, up from 57 percent shortly before the jobs report was released. They still put about 35 percent odds on a move in October.
The Canadian dollar declined against the greenback. [CAD/]
Derek Holt, head of capital markets economics at Scotiabank, said the growth in wages was the report’s key element and supported his expectation of a December hike.
“That’s a pretty solid appreciation in the pace of wage growth,” Holt said. “I think we are on the path to 2.5 to 3 percent wage growth off into next year.”
Other details of the jobs report were mixed, showing hiring of part-time workers accounted for all of August’s gains, while the unemployment rate dipped to 6.2 percent, its lowest since October 2008.
Most of the decrease in full-time employment occurred among workers between the ages of 15 and 24. In the last year, employers have added 213,000 full-time jobs, compared with 161,000 part-time positions.
Separate data showed Canada’s industrial capacity rose to 85.0 percent in the second quarter, its highest level since 2007, on increased volumes of oil and gas extraction.
Additional reporting by Fergal Smith and Susan Taylor; Editing by Lisa Von Ahn