Yukon Weekly

New evidence of wage inflation may force the Bank of Canada to intervene

New evidence of wage inflation may force the Bank of Canada to intervene

Key Takeaways:

  • The Bank of Canada, like its American counterpart, has stated that it hopes to slow inflation before large price increases become entrenched in the expectations of workers and businesses.
  • In the January jobs report, Statistics Canada will release the most recent earnings data, which will be of interest to economists looking for signs of wage inflation.

The Bank of Canada, like its counterpart in the United States, has stated that it hopes to slow inflation before large price increases become entrenched in workers’ and businesses’ expectations.

However, recent instances of not just wage demands but exact negotiated long-term contracts indicate that early signs of wage inflation in the Canadian labor market have already begun to emerge.

“In a new four-year collective agreement, Sobeys warehouse workers have negotiated huge wage increases, improved pensions, as well as wage parity for part-time workers,” declared Unifor, the union that represents Sobeys employees, in a release last Thursday, claiming a 19.5 percent wage increase over the agreement’s life.

While few may argue that this is simply keeping up with rising living costs, wage increases are one factor the Bank of Canada is keeping an eye on as it decides when and how much to raise interest rates to combat inflation.

Also read: Trucker protest: As the crowd in Ottawa continues to thin, 2 have been arrested

Keep an eye out for rising wages.

While the average wage increased by 2.7 percent over the previous year, Sobeys employees will see an increase of closer to 5% per year for the next four years, according to data from the December Labour Force Survey.

In comparison, the most recent inflation indicator showed consumer prices rising at a thirty-year high of 4.8 percent per year.

The latest earnings data from Statistics Canada will be released on Friday in the January jobs report, which will be of interest to economists looking for signs of wage inflation. Overall, economists predict that the Canadian economy will lose 100,000 jobs this time, following several years of gains.

According to Royal Bank economist Dawn Desjardins, the latest COVID-19 variant, Omicron, is to blame.

It’s hard to state how this would affect wage data because lockouts have historically impacted low-wage jobs the most, skewing the data in favor of higher wages.

Last week, Unifor National President Jerry Dias stated, “Unifor achieved significant pay treks over the life of this agreement, such as substantial raises that workers will see immediately.” However, Unifor wasn’t alone in keeping up with rising inflation and past low wage gains.

The Reuters Guild, which represents journalists at Thomson Reuters, a news service owned by the Canadian media conglomerate Thomson Reuters, is demanding an 8% wage increase, claiming that they have not received a raise since 2020 and comparing this to the family that owns the company’s staggering returns.

“To make up for several years of wage stagnation as well as inflation — while company profits soared, and also Chairman David Thomson’s family’s wealth grew by $8 billion,” the Reuters Guild asserts.

Other unions across the country are looking for raises as their members’ spending power dwindles as the price of necessities such as housing, food, and fuel rises.

“Members deserve a wage rise that keeps pace with rising costs of food, housing, and child care — anything less is a wage cut for federal public servants,” the Public Service Alliance of Canada, which represents more than 200 thousand federal employees, said in a November release.

That union says it wants a “4.5 percent wage rise in each year of a three-year agreement” in the current round of talks.

New evidence of wage inflation could force the Bank of Canada to act
New evidence of wage inflation could force the Bank of Canada to act. image from World republic news

‘It’s more of a blip,’ says one analyst.

With employers anxious for talent and employees progressively confident enough to quit and seek better pay, Desjardins of the Royal Bank of Canada believes that a temporary job shortage caused by Omicron will have a small impact on the long-term trend of worker shortages. She believes Friday’s expected job loss will be a blip on the radar if it occurs.

“Job vacancies, for example, are at an all-time high,” Desjardins said. “As a result, we’re falling behind in terms of the labor force available to fill those jobs.”

A few of the reasons Bank of Canada governor Tiff Macklem informed the Senate banking committee on Wednesday that the path of interest rates might have to rise to get inflation back on track is tightening labor markets. Macklem reiterated his prediction that price rises will slow to 3% by the end of the year and return to the central bank’s target range by 2023.

When senators asked if he was overly optimistic about high growth, productivity gains, and low inflation, Macklem admitted that meeting his inflation target quickly was still a gamble.

The bank governor stated emphatically that rising goods prices, not wages, had been the primary cause of inflation thus far and that wage increases had been a minor factor. Macklem said that that would remain the case as long as wage increases lagged behind productivity gains.

Increased efficiency means that the economy uses workers more effectively, resulting in more product per worker, which means that higher wages pay for themselves through higher output value.

Source: CBC News

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