As the consumer price index soars, it is clear that wage increases will follow.
To paraphrase the famous Hygrade Wurst slogan, more people want pay rises because inflation is rising, and inflation will keep rising because more people will get pay rises!
Nasty vicious circle of inflation, which the Bank of Canada will try to break with its strong rate hikes.
Since the beginning of the year, the Bank of Canada has raised its key interest rate by 2.25 percentage points from 0.25% at the beginning of the year to currently 2.50%.
Unfortunately, despite the Bank of Canada’s sharp tightening, inflation will continue to gallop. And that is why further rate hikes will follow in the coming months. We shouldn’t be surprised that the policy rate ends 2022 at around 3.50%.
So far, wage increases have lagged behind inflation.
Take the increases granted to full-time employees for the past year, from May 2021 to May 2022, the most recent 12-month period compiled by Statistics Canada.
For all employees, across all industries combined, the average salary for a full-time employee in Quebec last May was $32.23 an hour, up $2.16, or 7.18%.
During the same 12-month period, Quebec inflation increased by 7.5%. That brings the average salary of a full-time worker in the province currently down slightly by 3/10ths from 1 percent.
But based on the period of the last 24 months, from May 2020 to May 2022, wages there are lagging behind the increase in the consumer price index.
While inflation rose 11.9% over that 24-month (2-year) period, the average hourly wage for a full-time worker rose 7.86% from $29.88 in May 2020 to $32.23 last May.
This means that the average hourly wage of full-time employees has lagged behind the increase in inflation by a significant 4 percentage points in two years.
This equates to a $2,195 loss of purchasing power for a full-time worker whose average annual salary is $58,659 working 35 hours a week.
WORST CANADIAN SCALE
For your consolation, know that overall loss of purchasing power for full-time workers in Canada is higher than in Quebec.
While inflation rose 7.73% over the 12 months from May 2021 to May 2022, the average hourly wage for full-time Canadians increased just 4.33% (+$1.37 per hour) to $33.01 per hour.
Worse, over the last 24 months, from May 2020 to May 2022, inflation in Canada increased by 11.61%. And on the side of average hourly wages for full-time workers, wage growth progressed by just 3.8% over those two years.
Compared to inflation, the salary gap across the country is almost 8 percentage points. It’s enormous. The loss of purchasing power would be $5,517 for a full-time Canadian worker over a year.
With the prevailing low unemployment rate, it’s clear that wages will catch up in the coming quarters. This will inevitably lead to further price increases for products and services.
We are not out of the cycle of inflation!