Inflation Eats Up More Than Half of Wage Gains

Today, Statistics Canada reported an inflation rate of 1.2% for June, validating the Bank of Canada’s recent decision to keep interest rates low for the foreseeable future. The rationale to raise interest rates would be to curb inflation, which is already under control and well below the central bank’s 2% target.

But even at 1.2%, inflation eats up more than half of wage gains over the past year. The Labour Force Survey indicated that the average hourly wage rose by just 2.2% between June 2012 and June 2013.

Governments should be trying to foster a wage-led recovery by making it easier for workers to collectively bargain for better pay and benefits. Increased purchasing power would translate into more consumer demand and economic growth. Instead, the federal Conservatives have pursued a low-wage strategy by expanding the temporary foreign worker program, restricting Employment Insurance, and attacking unions.

2 comments

  • As you and other members of the forum have stated time and again, inflation has really fallen at the cost of wages to workers –not sound monetary policy. When fiscal policy is enacted strictly from the perspective of the supply side then ‘price signals’ will always tell us that worker wages are too high and that we are not ‘competitive’. This is exacerbated by technological advancements and global trade agreements making more off-shoring possible and preferable for some employers, and other jobs increasingly obsolete. The Federal Government’s programs have effectively killed off demand from a chunk of the labour force that otherwise had a high propensity to consume. In my opinion, the BOC will be faced with a continuing phenomena of deflationary pressures on wages domestically for most people, a drag to aggregate demand due to aging demographics, and bouts of supply side inflation in commodities that have become financial assets as financial capital continues to look for areas that will provide the highest return (think of crude oil in 2007, metals and food in 2011). The current legacy of monetarism is to promote wealth effects via asset price increases but what good does that do to those in precarious work situations?

  • Thomas Bergbusch

    But there is another argument out there, that somewhat higher interest rates are needed to inject additional interest income into the economy.

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