BoC Deputy Governor Vincent warns of inflation risks from missteps and said labour market shifts complicate policy

The more the economy faces shocks accompanied by structural change, the less clear-cut monetary policy decisions will be. Monetary policy cannot compensate for lower supply caused by trade friction or population ageing. The central bank is exploring more granular data to better understand what is happening in the job market. Mistaking structural demand issues for cyclical ones could create inflationary pressures while delaying necessary restructuring. Current conditions point to a mild excess supply in Canada’s labour market, which Vincent said is less dynamic than before. Canada’s labour market is marked by low turnover, rising long-term unemployment and persistently high youth unemployment. Structural changes in labour markets are making the Bank of Canada’s job more complicated.