Blockbuster jobs data fuels rate hike talk

Interest rates are going up, probably by the end of the year. That means higher mortgage rates, higher loan rates, the whole thing. That's the end of the story - the beginning of the story, however, is the Canadian jobs report for April.

Well, arguably the starting point goes back further, but we have to talk about that jobs report. I don't want to be too sensationalistic- that wouldn't be too economist-like - but really this one was a blockbuster.

Canada added 58,000 jobs in April. In itself, that's a high number, but coming on top of 83,000 jobs in March it is crazy-strong. There has not been a two month job gain like that in at least three decades. For the second month in a row, too, the gains were in full time work - 44,000 of the total this month.

Sure, you can find some less upbeat details in the report.

Although seven of the 10 provinces gained jobs in the month, Canada's largest province - Ontario - did not. And nationally, the unemployment rate was up a touch - to 7.3 percent from 7.2 percent. Still, even that was for the right reasons, so to speak. The better economic climate brought more people into the labour market, which is a sign of confidence.

Now to the interest rate side of the story. The higher-interest-rate side of the story actually.

When the Bank of Canada last issued a statement on the Canadian economy a few weeks ago, they made it clear that interest rates had to move higher. Their exact phrase was that a 'modest' interest rate increase 'may become appropriate,' but we all know what they mean. Up is up. The best guess as to when was to the end of this year, maybe the beginning of next, but then people started changing their mind on that.

We got a slew of bad news all at once - weak economic numbers for Canada and terrible economic news out of Europe - and it seemed that the Bank might not be able to move after all. It was kind of a bad-news-but-good-news for debtholders kind of scenario. But scratch that picture: all of a sudden the news looks a lot better.

When will the Bank of Canada hike rates? Maybe not until the end of the year, and maybe not by much. But, rest assured that they will do it.

It seems like a quaintly old-fashioned notion, but central banks have to worry about inflation as well as growth. Our own central bank governor, Mark Carney, explains exactly why in an editorial published in today's Financial Times, as a matter of fact. And, all things being equal, a multiple-decade high in job gains suggests that wage pressures and price pressures are ahead.

So live in a denial for a while if you want, but it really wouldn't hurt to go run your interest payment schedule with a slightly higher interest rate, just in case.