No economic growth indicates monetary policy will continue to bring down inflation: Chief economist
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.