Saturday, March 25, 2023

Canadians' wages kept growing in February: StatsCan

Canadians’ wages grew more than five per cent year-over-year in February, Statistics Canada reported on Friday, a bigger increase than those recorded in January and December.

The monthly Labour Force Survey said average hourly wages rose 5.4 per cent year-over-year to $33.16 in February.

Hourly wage growth was the same for men and women, but StatsCan reported that men still earned about $5 more per hour than women did last month.

Canadian men earned an average $35.63 per hour in February 2023 compared with a $30.67 average hourly wage for women.

Wage growth is one area of the economy that’s being watched closely by the Bank of Canada (BoC) as it aims to bring inflation back down to its target two per cent.

The central bank referenced the tight labour market in its Wednesday statement on the decision to leave the key interest rate unchanged at 4.5 per cent. It also pointed to wages that are continuing to grow at a rate of about four to five per cent, despite declining productivity in the economy.

The BoC said it expects projected weak economic growth for the next few quarters to “moderate wage growth” and ease pressures in the labour market.

Royce Mendes, head of macro strategy at Desjardins, said Friday’s strong jobs appears to be veering off course from the central bank’s expectations, and it has potential to force the BoC to change its stated plan to pause interest rate increases.

"We’re seeing wage growth pick up to levels that are going to make the Bank of Canada uncomfortable,” Mendes told BNN Bloomberg in a television interview Friday, calling the jobs report “unsustainable.”

“I worry that this is setting up the possibility for further rate hikes this year.”

Economists and the Bank of Canada have repeatedly raised concerns about the potential inflationary pressures of rising wages.

However, a recent report from CIBC economists Benjamin Tal and Karyne Charbonneau looked at how the composition of Canada’s labour market has changed during the COVID-19 pandemic, and suggested that wage pressures are “not as inflationary as perceived.”

“At any point, a change in average wage reflects not only a pure pay increase but also changes in the composition of labour. And during each one of the pandemic years, that change in composition was very pronounced. This has important implications for our understanding of the inflationary potential of the current wage trajectory,” they wrote in the Feb. 23 report.

The economists noted that job growth in high-paying industries has outpaced growth in low-paying sectors, which dropped in 2020 when the pandemic set in. They pointed to a pandemic drop in job creation at small employers, which pay lower wages on average, compared with larger employers that pay more, and a drop in self-employment people who tend to earn less – all factors they said are contributing to the wage growth figures.

“The Canadian labour market is tight, but the headline wage figures overstate its strength,” the authors said.


Inflation is easing but Ottawa faces 

pressure to help those who have fallen

behind

Canada's inflation rate likely took another dip last month, but with many Canadians still struggling with the cost of living, the federal government is facing pressure to deliver more help in the upcoming budget.

Statistics Canada is set to release its February consumer price index report on Tuesday, giving its most up-to-date reading on inflation ahead of the federal government's budget on March 28. 

Desjardins and RBC are both forecasting the inflation rate fell to 5.4 per cent last month, down from 5.9 per cent in January.

But even as inflation eases, the federal government has signalled the budget will include affordability measures to help Canadians still challenged by the cost-of-living.

Desjardins' chief economist Jimmy Jean said all eyes are on Ottawa to balance affordability priorities with fiscal restraint.

"One of the things we obviously are going to watch is what governments put forward to help with cost of living, all with the constraint that it must not add fuel to the fire (of inflation)," Jean said. 

The Bank of Canada has been laser-focused on bringing inflation back down to its two per cent target. Its aggressive rate hike cycle over the last year is starting to slow the economy by forcing people and businesses to pull back on spending. 

As the economy slows, economists worry excessive or untargeted measures by the federal government could work against the central bank's efforts and force it to raise interest rates even higher. 

Finance Minister Chrystia Freeland has said repeatedly that she's committed to fiscal restraint and ensuring the federal government doesn't make the Bank of Canada's job harder. 

But the Liberals are also facing pressure from New Democrats to continue providing support for low-income Canadians who are hardest hit by inflation. 

NDP Leader Jagmeet Singh said he wants to see the government extend the six-month boost to the GST rebate, introduced last fall, which temporarily doubled the amount people received.

At a news conference Wednesday, Prime Minister Justin Trudeau didn't weigh in on whether his government would extend the rebate, but said the budget will include affordability measures. 

"In our budget, we are going to be putting forward measures that will directly help Canadians," Trudeau said. 

Inflation has become a top political and economic concern in the country after a significant runup in prices last year, driven in part by the Russian invasion of Ukraine and mangled supply chains.

But since peaking at 8.1 per cent last summer, Canada's inflation rate has been steadily declining as global pressures on inflation ease and high interest rates weigh on the economy. 

Jean said lower gas prices last month likely drove the headline inflation rate down further. Other components of the CPI, like food prices, probably didn't ease by much.

Grocery prices in January were a staggering 11.4 per cent higher than they were a year ago. 

RBC economist Carrie Freestone said businesses, including grocers, have been able to pass on the extra costs they're facing from suppliers to consumers. But grocery prices are still expected to ease as lower agricultural commodity prices feed through the supply chain.

"It's just seems to be taking a bit of time," she said. 

The Bank of Canada is currently holding its key interest rate steady at 4.5 per cent, hoping inflation will ease without the need for more rate hikes. It's forecasting inflation will fall to about three per cent by mid-year. 

"As long as inflation continues to trend lower as we expect ... (the Bank of Canada) will probably stay on the sidelines," Freestone said.

For workers who haven't seen their wages keep up with inflation, the rapid rise has been especially punishing. But as inflation slows, the gap between the two is narrowing. 

In February, average hourly wages were up 5.4 per cent, matching forecasts for inflation.

The Bank of Canada has said persistently strong wage growth will make getting back to the two per cent inflation target difficult. 

For workers, Jean said the narrowing gap between inflation and wage growth is good news, but doesn't make up for what they've lost. 

"We're not talking about making up for the last two years of wage growth not keeping up with inflation," Jean said. "We're just stopping the hemorrhage here." 

This report by The Canadian Press was first published March 17, 2023.


No comments:

Post a Comment