Jobs data means Bank of Canada more likely to raise rates, report says.

UPBEAT SURVEY

JESSE SNYDER OTTAWA • Expectations of a tightening labour market in 2018 is helping fuel speculation that the Bank of Canada will raise its overnight interest rate later this month, a belief that has rapidly gained traction following a betterthan-expected jobs report last week.

In its Business Outlook Survey released Monday, the bank found that businesses plan to expand their operations and boost investment over the next year, even as they expect increased labour shortages and capacity pressures.

Analysts say the survey results appear to restrict options for Bank of Canada Governor Stephen Poloz, who has assumed a decidedly more data-driven approach to future rate decisions. The survey shows Canada’s labour pool tightening, just days after it released a jobs report that some economists called “spectacular.” The bank had repeatedly said that still-low wage growth was one of the major factors that could postpone higher interest rates.

“It’s hard to actually see them not hiking,” said Avery Shenfeld, the senior economist for CIBC Capital Markets. “They would have to have a twisted logic.”

According to the survey, 46 per cent of respondents expect more intense labour shortages in 2018 compared with last year, while only 11 per cent see less intense shortages.

That comes after Canada posted 78,600 new jobs in December, while unemployment fell to a historic low of 5.7 per cent.

Forty-four per cent of respondents said they would have difficulty meeting an unexpected rise in demand, while 12 per cent said they would have “significant” difficulty. The total number of businesses who would have difficulty meeting unforeseen demand is the highest since the fourth quarter of 2007, according to past survey results.