© Reuters. FILE PHOTO: A help wanted sign at a store along Queen Street West in Toronto Ontario, Canada June 10, 2022. REUTERS/Carlos Osorio

By Ismail Shakil and Steve Scherer

OTTAWA (Reuters) -The Canadian economy beat expectations by adding 21,800 jobs in February, putting pressure on the central bank to consider another rate hike after saying it wanted end its year-long tightening campaign, data showed on Friday.

Analysts surveyed by Reuters had forecast a net gain of 10,000 jobs after January’s whopping 150,000 increase. The jobless rate held steady at 5.0% in February, while economists had forecast it would edge up to 5.1%.

The average hourly wage for permanent employees rose 5.4% in February on a year-over-year basis, up from 4.5% in January.

“Evidence is accumulating that the labor market is not following the Bank of Canada’s plan for the economy,” said Royce Mendes, head of macro strategy at Desjardins, citing in particular the acceleration in wage growth.

“Markets will continue to price in high odds of another Bank of Canada rate hike after seeing these numbers.”

Money markets see about a 65% chance that the Bank of Canada will raise interest rates further this year, down from 80% before the data. The move lower comes as U.S. wage inflation showed signs of cooling and hints of stress in the U.S. banking system drove demand for safe-haven assets.

The Bank of Canada left its key overnight interest rate on hold on Wednesday, becoming the first major central bank to hit the pause button on rate hikes that began when inflation spiked last year.

On Thursday, the BoC said it is watching economic data to assess whether it can leave its key overnight rate at 4.50%, or whether it needs to go higher.

The BoC has said it will hold rates as long as inflation drops in line with its January forecast. But Senior Deputy Governor Carolyn Rogers (NYSE:) said on Thursday the economy remained in excess demand, citing an “incredibly tight” labor market.

“There simply is no sign that the labor market is succumbing whatsoever to the rapid-fire tightening of the past year,” said Doug Porter, chief economist at BMO Capital Markets.

“If there is any disappointment in the inflation numbers in the months ahead, the Bank almost certainly will be back hiking rates again.”

Inflation eased to 5.9% in January from a peak of 8.1% last year, and the central bank forecasts it will slow to 3% by around mid-year.

February’s job additions were led by industries including healthcare and social assistance and public administration, while fewer people worked in business, building and support services, Statscan said.

The services sector added a net 4,200 jobs, helped by the gains in healthcare and public administration, while employment in the goods sector increased by a net 17,500 jobs, led by utilities and manufacturing sectors.

Total hours worked rose 0.6% in February and were up 1.4% on the year.

The Canadian dollar was trading 0.2% higher at 1.3795 to the greenback, or 72.49 U.S. cents, after earlier touching a near five-month low at 1.3861.

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