Inflation Eats Up Three-Quarters of Wage Gains

Today, Statistics Canada reported an annual inflation rate of 1.3% for July. By comparison, it reports that the average hourly wage rose by 1.8% between July 2012 and July 2013.

In other words, even anemic inflation is eating up nearly three-quarters of wage increases. On average, Canadian workers have eked out only a 0.5% improvement in purchasing power over the past year.

Low inflation and the weak job market both argue for the Bank of Canada to keep interest rates low. The rationale to hike interest rates would be to quell inflation, which is already under control and well below the central bank’s 2% target. The rationale for low interest rates is to accommodate investment financing and avoid upward pressure on the exchange rate.

One comment

  • Once again, I strongly suspect differences in wage gains between the rich and poor make even that figure deeply misleading. I’d be willing to bet if you took an average of just the bottom four fifths of wages, say, it would show actual reduction in purchasing power over that period.

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