Tapping new hiring pools key to growing economy without sparking inflation: Poloz

The Canadian Press

The Canadian Press

The Canadian dollar weakened against the greenback on Tuesday after Bank of Canada Governor Stephen Poloz said that the country's economy could grow without spurring inflation, though investor positioning was seen as exaggerating the move.

"It should be clear that there are likely to be significant economic benefits associated with allowing the economy to find its way to a higher, more productive economic equilibrium, if this can happen within our inflation-targeting regime", Poloz said.

Mr. Poloz said the central bank is keeping a close eye on this creation of new economic potential as part of its "risk management approach" to monetary policy.

As this process involves upside and downside risks to inflation, the central bank will remain particularly data-dependent, Poloz said.

"The governor's choice of [speech] topics is in line with our view that he's looking for reasons to take rate hikes slowly", Canadian Imperial Bank of Commerce chief economist Avery Shenfeld said in a research note.

"This is important, for it means that Canada may be able to have more economic growth, a larger economy, and therefore more income per person, without generating higher inflation", he said.

"We cannot know in advance how far the capacity-building process can go, but we have an obligation to allow it to occur".

Poloz said Canada is in the "sweet spot" of the economic cycle where companies will need to hire in order to boost sales.

Despite Canada's low unemployment rate, a wider range of labor market indicators point to "a degree of untapped supply potential in the economy", Poloz said.

Mr. Poloz cited the example of Quebec, which has dramatically raised the participation rate of prime-age women to 87 per cent from 74 per cent over the past two decades by subsidizing child care and extending paid parental leave.

In comparison, he says about 83 per cent of prime-age women participate in the national workforce and lifting it to Quebec's level would add nearly 300,000 people to the country's labour force and expand economic growth.

Youth represent another source of untapped potential.

Poloz noted that the federal government's budget last month made commitments aimed at increasing the labour-force participation of women.

Although the labor market has become healthier over the past year, there is still some slack, Poloz said.

The increased investment, meanwhile, will help bring more people into the work force - such as women, youth and the long-term unemployed.

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