Canadian employers added 108,000 jobs in October, wildly surpassing economist expectations of a 10,000 gain, Statistics Canada reported in its Labour Force Survey on Friday.
The agency said the October increase was entirely in full-time work and helped recoup all of the positions lost since May. StatCan also said the gains were widespread across industries including manufacturing, construction and food services. A weak spot was the wholesale and retail industry, which shed jobs.
The unemployment rate held steady at 5.2 per cent.
"The Canadian labour market came out of its summer lull in spectacular fashion in October, with an unexpected surge in employment and wage growth," Andrew Grantham, senior economist at CIBC Capital Markets, said in a note to clients.
Wage growth once again came in strong at 5.6 per cent amid a tight labour market. It’s the fifth month in a row that wages have risen by more than five per cent, and an acceleration from September's 5.2 per cent increase.
That could be a red flag for the Bank of Canada, which has worked to prevent a wage-price spiral, where high inflation and increasing wages continuously feed into each other.
Last week, the central bank hiked its key lending rate by a smaller-than-expected half percentage point and warned it sees growth flatlining in the coming months as interest rate hikes tamp down the economy.
Wage growth worries for Bank of Canada
Economists appear split on how wage growth could impact the central bank's thinking on rates.
"The 108,300 surge in employment in October makes a mockery of claims that the economy is on the cusp of recession and, with wage growth accelerating sharply despite favourable base effects, that means the Bank of Canada may need to raise interest rates by more than it has recently suggested," Stephen Brown, senior Canada economist at Capital Economics, said in a note on Friday.
Meanwhile, Grantham doesn't see this significantly knocking the Bank off its current course.
"While today's figure was much stronger than expected, the volatility of this survey and declines seen over the summer mean that the six-month average for employment gains is still only 9K, which is slightly below the pace of labour force growth," he said.
"Coupled with the fact that there is one more employment report before the Bank of Canada's next meeting, today's data shouldn't change the narrative that we are closer to the end of the current rate hiking cycle than the beginning, although it does support the call for a 50bp hike rather than 25bp in December."
Royce Mendes, managing director and head of macro strategy at Desjardins, says the strength in wages is starting to become its own source of excess inflation and could pressure the central bank to hike its key lending rate more than it expected.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.