Wages are rising in Canada. Will inflation, interest rates suit? – National | Globalnews.ca

signs of salary Ticking more may just be the balm some Canadians need to offset the hot pursuit. inflation,

But just as the pandemic may be set to catch up with incomes after years of wage gaps, economists say fears of rising wages due to rising prices could lead to swift action. bank of canada Stopping development before it happens.

Experts warn Rate of interest In the endless cycle of inflation ensuring rising labor costs on consumers may have to rise higher or more rapidly.

According to Statistics Canada, Friday’s jobs data showed that, as expected by economists, wages grew at a faster pace, with the average hourly wage rising 5.2 percent to $31.24 a year, compared to a 3.9 percent annual increase in May. Had happened.

Compared to wage increases before the pandemic, June recorded the fastest growth since the collection of comparable data in 1998. However, wage growth in June was still below the most recent inflation rate of 7.7 per cent reported in May.

Meanwhile, the Canadian Federation of Independent Business (CFIB) reported in its most recent business barometer report At the end of June employers are expected to raise wages by 3.7 percent over the next year – the highest annual level recorded by the CFIB.

Brendan Barnard, senior economist at job search site Indeed Canada, says conditions are ripe for employees to earn higher salaries from their current employers or through changing jobs.

In an interview with Global News, he pointed to the “stiffness” of the labor market, with a low unemployment rate and a large number of vacancies, putting workers in the driver’s seat when it comes to pursuing opportunities. .

Bernard points out that employers are willing to pay more to attract candidates and keep the employees they have.

He notes that in fact more employers are also touting sign-on bonuses and other recruitment incentives as a way of attracting job seekers to their companies — a strategy they say, usually. but is reserved for interaction with the preferred candidate.

“As the labor market becomes more competitive, there is increasing pressure on employers to attract job seekers,” Barnard says.

According to the Bank of Canada, rising cost of living is one factor driving businesses to increase employee wages. business outlook survey Released on Monday.

Decreasing affordability at gas pumps and grocery stores is also prompting workers to bid up their wages.

David MacDonald, senior economist at the Canadian Center for Policy Alternatives, says workers’ wages have not kept pace with inflation during the pandemic.

they wrote report in April It showed that worker wage growth in the past two years, particularly in the public sector, education and health care, was well below average inflation of 3.4 percent.

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So when wages have increased, adjusting for inflation, workers are facing real wage loss during the pandemic, he concluded.

Inflation is now well above that average, reaching 7.7 per cent last national in May, raising wages more than ever to meet demand.

“Workers are far behind on inflation,” McDonald said in an interview with Global News.

“They’re going to see a substantial real wage loss this year because it will be very difficult to find employees who are seeing eight percent wage growth this year alone. And that’s what you need to keep pace with inflation.”

Doug Porter, chief economist of the Bank of Montreal, recently sounded the alarm in a note to clients on wage and employment data that, “after a surprisingly calming for Canadian wages, the payroll survey fired a shot at the inflation bow.” “

Barnard points out that higher wages can actually contribute to inflation.

“Wages are important when it comes to maintaining the cost of living. But there are potential spillover effects on prices and cost of living,” he says.

If businesses are increasing wages to keep and attract employees, those higher labor costs often feed back into the cost of goods and services, Barnard says. If left unchecked, Canada’s economy can fall into a cycle of rising wages that never keeps pace with rising prices.

Respondents to the Bank of Canada’s Business Outlook Survey actually indicated that they planned to pass the costs driven by rising wages onto consumers. CFIB members said they expect their average prices to rise by 4.8 per cent next year, according to the June Business Barometer.

Barnard noted that it is not the main fuel for Canada’s current inflation episode, however. Global factors such as the war in Ukraine are having a major impact on supply, influencing home prices more than the initial flurry of wage increases.

But higher wages also put pressure on the demand side of the inflation equation.

Some key inflationary inputs, such as rent, increase in correlation with wages, Barnard says. And when Canadian incomes rise, households are more likely to spend and consume – the Bank of Canada is trying to avoid the exact same behavior by raising interest rates and shrinking the economy.

For this reason, Barnard says, the central bank may have reason to suppress wages.

“It may be that wage growth is not the primary source of factors driving inflation today, but may increase in importance tomorrow,” he says.

Many economists expect the Bank of Canada to raise its benchmark interest rate by 75 basis points upon its next decision on July 13.

Canada’s central bank is expected to follow in the footsteps of the US Federal Reserve, which gave such hikes last month, as central banks around the world look to reduce inflation.

Macdonald says the Bank of Canada will have little room to survive a lower wage increase as it looks to moderate inflation.

“The Bank of Canada is a one-trick pony and its trick is interest rates,” he says.

“This is one of the big challenges when using interest rate policy, it becomes a very blunt instrument and a blunt instrument that will drive down wages. Well, likely what it will do, it will give workers inflation. will not allow him to bid for his salary to catch up.”

However, Macdonald argues that it may not be the only way to reduce inflation when wages rise.

With businesses hoping to raise wages in a tight labor market, he says companies often hike prices before employee increases.

The result, they say, is a pandemic recovery driven by corporate profits, not workers’ wages. Canada’s corporate profit-to-GDP ratio has been the highest in 50 years during the recovery of the latest recession. According to a CCPA analysis,

Rather than burden the Bank of Canada to deal with rising prices with a “blunt instrument” of interest rates, Macdonald says governments can take action to regulate “pricing” from corporations that need to be subject to minimal competition or regulation. Allowed to work with comprehensive price control. Powers, such as grocery stores or oil and gas companies.

If the federal and provincial governments do not change regulation to bring prices under control in Canada – instead the responsibility for inflation is gradually left to the Bank of Canada – Canadian workers will be left with permanently low wages and vital jobs. will suffer losses, Macdonald argues.

“There are a lot of things that governments can do… try to control inflation. And they should be doing those things now,” he says.

“Otherwise the bank will do what it does, which is raise interest rates until the recession hits.”

With files from the Canadian Press