By Julie Gordon

OTTAWA (Reuters). Canada’s fall to pre-pandemic employment levels is likely to seal the deal with the Bank of Canada on ending its quantitative easing programme this month. The combination of red hot inflation and a strong case for more rapid rate rises by the central bank, analysts believe.

Canada created 157,100 new jobs in September. This was more than expected and helped to regain the three million people who were displaced by the crisis. This job boom comes at a time when inflation has risen to an 18-year high and is double what the Bank of Canada target of 2%.

Tiff Macklem, the Governor of the Bank, argued that inflation is largely temporary. He also stated that there was still labor market pain. There were persistent mismatches between workers and employers and slow wage increases.

Some analysts believe that the central bank is too cautious. They say it’s wrong to pretend Canada is still in a crisis and continue to assume the economy has some difficulties.

Derek Holt chief economist, Scotiabank Economics, stated that “we still have emergency levels to stimulus which were placed in place for deflation fear.” “(Now), we are way over our inflation target.”

“We need to be considering a rate increase before the end this year. However, they won’t be able to. Holt said that he believes they will continue to fight the issue for some time yet.

The central bank should be reticent. Although employment levels have returned to prepandemic levels now, Canada is still short 276,000 full-time jobs due to the increased size of its labor force since the pandemic.

Even though employers claim they can’t hire enough workers, many workers are still having difficulty finding work. While wages have not been increasing at a regular rate, they grew only 1.7% in September over the previous year and 4.3% from February 2020 to 2020.

Stephen Brown (senior Canada economist, Capital Economics) stated that “the wage data was still very modest.” He also suggested that some of this could be temporary as workers with lower wages return to work. This would affect overall averages.

Brown explained that the Bank doesn’t have to be patient for several months in order to determine how it all plays out.

It is expected that the Bank of Canada will reduce its quantitative ease program from C$2 trillion per week to C$1Billion (802 million). This announcement is due to be made by it on October 27, when its next rate decision is announced.

QE will now move into a reinvestment stage, which means that new bonds bought are just replacing the mature ones, effectively stopping any new stimulus.

It is not the same thing to remove stimulus from the economy. Macklem stated that the first step to doing so would be to raise rates, but the Bank has indicated that this won’t occur until the second-half of 2022.

Canada’s 2-year yield was sensitive to BoC rate increases and rose 5.2 basis point at 0.690%. It is now the highest level since March 2012.

Doug Porter, Chief Economist at BMO Capital Markets stated that while we still believe the Bank of Canada will begin hiking one year from now, the risks of them starting earlier are increasing rapidly,” in a memo.

Porter expects that these hikes will occur at a pace of one per quarter instead of every six months.

Canadian dollars rose 0.8% on Friday after job data. They reached their highest level for more than 2 months at 1.2447 greenbacks (or 84.34 U.S.cens)

($1 = 1.2473 Canadian dollars)