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Pedestrians walk past a sign announcing in-restaurant dining, in Toronto, on Jan 31.Fred Lum/the Globe and Mail

Canada’s labour market bounced back sharply in February, more than recouping the jobs that were lost when the Omicron variant of COVID-19 ripped through the economy.

The country added 337,000 jobs last month, after a decrease of 200,000 in January, Statistics Canada said on Friday. The unemployment rate fell to 5.5 per cent from 6.5 per cent, taking it near a record low that was set months before the pandemic began.

A hiring binge was expected in February, but nowhere near as much as what took place. The median estimate from Bay Street analysts was an increase of roughly 125,000 positions.

The private sector drove the entirety of job gains, which were largely for part-time positions, and with forceful snapbacks in hard-hit industries, such as hospitality and culture.

In the process, the labour market notched several milestones. Notably, the employment rate – the proportion of the adult population (age 15 and up) who were employed – rose a full percentage point to 61.8 per cent, returning to its prepandemic level for the first time.

Canada is enjoying one of the world’s top labour recoveries from COVID-19. By way of comparison, employment in Canada has increased 1.9 per cent since February, 2020, while in the U.S. it has fallen 1.4 per cent.

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The report provided another indication that Canada’s economy is running hot – perhaps distressingly so.

Several analysts on Friday said the country has reached full employment, which could spark higher inflation as employers compete for fewer available people. The annual inflation rate is already at a three-decade high of 5.1 per cent, although central bankers have largely pinned that on pandemic-related factors, such as supply chain disruptions.

The Bank of Canada raised its key interest rate earlier this month for the first time since 2018, aimed at tamping down inflation. The bank has acknowledged that steep inflation is expanding to more products, and now the Russia-Ukraine war is leading to a surge in commodity prices over which central bankers have little control.

“As if the Bank of Canada’s job wasn’t challenging enough, this rollicking employment report complicates matters even further,” Bank of Montreal chief economist Doug Porter said in a report to clients. “An ultra-tight labour market, hot headline inflation, soaring commodity prices and a blazing housing market all suggest that the bank will press on with additional rate hikes even in the face of a dimmer global growth outlook.”

Ontario paced the provinces with a gain of 194,000 positions as it eased public-health restrictions. Quebec added 82,000 jobs in February. Statscan noted that work absences because of illness, which soared to record rates in January as a result of Omicron, fell back, as infection faded, to levels that were typical for February.

For many employers, the persistent concern is the availability of workers.

As of December, there were about 900,000 job vacancies, near a recent high, according to the latest figures from Statscan. The number of vacancies in health care and social assistance (137,100) hit a record that month, while employers were recruiting for more than 142,000 positions in hospitality, more than any other sector.

Despite that demand for labour, wage growth was tepid in 2021, although it appears to be picking up. The average hourly wage increased 3.1 per cent in February from a year earlier, faster than in recent months.

“With firms’ hiring plans still elevated, we expect the unemployment rate to fall near 5 per cent later this year and wage growth to accelerate much further,” Stephen Brown, senior Canada economist at Capital Economics, said in a research note.

For many workers, a pay raise can’t come soon enough. Average wages are growing at a slower rate than inflation, which effectively translates into a pay cut and the loss of purchasing power.

At the same time, the Bank of Canada wants to avoid a wage-price spiral, in which workers seek better wages to cope with higher inflation, which forces companies to raise prices because of higher labour costs.

Last week, Bank of Canada governor Tiff Macklem said the central bank could be aggressive in raising its benchmark interest rate and wouldn’t rule out a half-percentage-point increase later this year, as opposed to the typical quarter-point hike that’s been standard the past two decades.

“Indeed, the odds of more aggressive actions later on this year have just ratcheted higher, although policy makers will likely need more clarity on the global backdrop before stepping up the pace of rate moves,” Mr. Porter said.

“The strong jobs backdrop also has important implications for fiscal policy,” he added, “with Ottawa’s budget due in the weeks ahead, and the need for additional spending melting fast.”

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