Economy ready to start creating jobs again, TD Bank says

The Canadian Press ~ The News
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OTTAWA - Consumer prices rose more than expected last month, but there were few signs the Canadian economy was heating up sufficiently to cause the Bank of Canada to jump the gun on interest rate hikes.
Canada's inflation increased for the second straight month to hit an eight-month high of one per cent in November, Statistics Canada reported. That's 0.2 points above consensus, in another signal the economy is normalizing.
But prospects for further monthly jumps were slim and core inflation, which excludes volatile items such as food and energy costs, actually fell three-tenths of a point to 1.5 per cent, still a half point below the central bank's favoured level.
Thursday also saw a flurry of economic forecasts that predicts Canada will lead the G7 industrial nations in growth next year, although at 2.7 per cent, it resembles a race of economic turtles.
The good news is that according to several bank reports, the world economy will advance at an about four-per-cent pace next year and almost all nations have now begun growing.
"The day has finally arrived that we can confidently say the Global Great Recession has ended," declared Beata Caranci, director of forecasting with the TD Bank.
In an interview on Business News Network, central bank governor Mark Carney did not disagree with the assertion, although his words were more circumspect.
"At this stage we see more likely growth is becoming a little more solidly entrenched (internationally), but it is not assured," he told the cable TV business channel based in Toronto.
The central banker was as inscrutable as he was during a Wednesday news conference on the question of whether he would consider raising rates before his conditional commitment to keep the policy rate at 0.25 per cent expires at the end of next June.
Central bankers use higher rates to control inflationary pressures in the economy, trying to clamp down on excessive borrowing and spending that often fuel price increases for goods, services, wages and housing.
Carney has for months stuck to the line that the commitment was conditional and could change if conditions change.
But he also repeated his warning that Canadians who take out big loans, such as mortgages, should realize rates will rise at some time and so will the cost of servicing those loans.
Nothing in Thursday's inflation numbers gives Carney reasons to move earlier, economists said.
Inflation superficially appears to be growing by leaps and bounds - a one percentage point bounce in October followed by a 0.9 per cent jump in November - but the movement is more apparent than real.
Statistics Canada noted that the key driver was the base effects of gasoline prices which plunged through October and November last year, making the current more stable levels appear volatile.
Overall, most items that go into making up the consumer price index rose in November, but moderately so. Even food price gains, for most of the year the key driver to higher inflation, has returned to earth with November prices only 1.7 per cent higher than last year.
Gasoline's wild fluctuation is expected to level off going forward, as well, as the differential between last year and this closes.
The more important number is core inflation, which excludes volatile items like gasoline and fresh foods, say economists.
"Core inflation being back roughly in line with the (central bank's) expectations, combined with governor Carney's comments that household debt and housing markets are a concern but a low risk at this juncture, both signal a Bank of Canada that is serious on sticking to its conditional commitment," wrote Scotiabank economists Derek Holt and Karen Cordes.
But many economists believe Carney can't wait to start raising rates.
"I think he'll raise interest rates at the earliest opportunity in July," said Douglas Porter, deputy chief economist with BMO Capital Markets.
Holt said there are varying opinions of how high Carney will take rates once he starts guarding against the advent of inflation, ranging from a trendsetting policy rate of one per cent, to 2.5 per cent by the middle of 2011. The current 0.25-per-cent rate is at what the bank calls the lower possible bound.

Organizations: TD Bank, Bank of Canada, Statistics Canada G7 Business News Network Scotiabank BMO Capital Markets

Geographic location: Canada, OTTAWA, Toronto

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