Canadian Households See A Big Drop In Real Wages Ahead: Bank of Canada

Despite Canada’s booming labor market, households see a bleak year ahead. Bank of Canada (BoC) conducted its quarterly Survey of Consumer Expectations for Q4 2022. The results show households expect inflation to continue ripping higher over the next year. At the same time, the outlook for their own wages have eroded. The combination has led households to expect a sharp drop in real (inflation-adjusted) wages over the next year. 

Canadian Households Continue To See Higher Inflation

Canadian households continue to see higher inflation in the coming months. They expect prices to rise 7.2% over the next 12-months according to the Q4 2022 survey. This is a slight increase from the 7.1% expected in the previous quarter, and a big jump from the 4.9% a year ago. In short, they don’t see moderation in the coming year—they see inflation continuing at this pace. 

Canadian Households See Falling Real Wages Ahead

Results of household expectations for inflation and wage growth over the next 12-months.

Source: Bank of Canada (Survey of Consumer Expectations); Better Dwelling.

Canadian Households No Longer See Lofty Wage Growth Ahead

At the same time, Canadian households have eroding expectations for wage growth. They expect their wages will rise an average of 2.5% over the next 12 months, down from 2.8% in the previous quarter. In fact, households have never in the survey’s history expected wages to rise anywhere near the current rate of headline inflation (6.8%).

Households Expect A Sharp Decline In Real Wages, & That’s Going To Be A Problem

If it didn’t jump out at you, the gap between inflation and wage expectations is huge. Households expect inflation to rise an average of 4.7 points faster than their wages. It’s an unusual gap, with inflation expectations typically outpacing wages only slightly. There’s never before been a gap like this. 

A decline in real wages means an erosion in quality of life, and reduced spending power. Households expecting a reduction in quality of life during a strong labor market is problematic. It’s likely to amplify the recession, since they already see their wages failing to keep up with their cost of living. 

Reduced spending power can also amplify recession risk and make it harder to recover. If necessities regularly consume a larger share of income, the additional money has to come from investments or consumption. A reduction in either area can reduce employment, which is the opposite of what a downturn needs. 

10 Comments

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  • Mark Bayly 1 week ago

    Vote importing a million immigrants a year lowers wages. You don’t have to be an expert to figure out that equation.

    • Vitali 4 days ago

      Majority voted for weed. Majority in Quebec voted for French and $500 payback. So, eroded quality of life is what majority wants. They must use weed and this $500 to alleviate their problems

    • Little Red Riding Hood 23 hours ago

      Just because we have a population/immigration boom doesn’t mean people will be able to afford mortgages and the nosebleed house prices of today. I remember the housing crash of 1978 to 1982 in the U.S. High-paying tech jobs dried up, inflation proved sticky and interest rates kept rising. Housing sales dropped 50% from 4 million units in 1978 to 2 million in 1982. It took 20 years, or until 1996, before home sales reached 4 million units again. This is what I see happening now. I hope you all prove me wrong.

  • Craig 7 days ago

    I agree with Mark: “Immigration will save us” is not a sensible formula on the cusp of a recession. New immigrants deserve good salaries and affordable housing; as do all Canadians.

  • Miff Tacklem 7 days ago

    Isn’t it interesting that Stats Can is telling us that inflation has peaked but what the average Canadian sees in their everyday lives is the rate of inflation increasing? One of these is lying, Stats Can, or your own eyes.

  • Scott 6 days ago

    Not worry. Here in Canada we have some of the smartest people looking out for us…

  • Singh 6 days ago

    Canada does not have 30 or 15 year fixed loans like the U.S. The citizens are not at the mercy of Banks like people in Canada are. That is why it is so stupid by the people running Bank of Canada have raised rate like the Americans. It’s a big mistake in the U.S. but it’s criminal in Canada. Especially when they had repeatedly told people they were not going to raise rates in the near future.
    These politicians in Canada need to make changes here to have 30 and 15 year fixed loans so there can be a stable environment for property owners. Now on top of that when home prices are falling they have added huge increases in assessments to suck more money out of their citizens. 24 hour waits for getting into hospitals. No Doctors and extremely poor outcomes.
    There is a shortage of housing, inflation and there is a push for more immigration.
    College and University expenses have made it next to impossible for Canadians to get a proper education.
    Homelessness and people with mental health are being ignored.
    These are just a few things. But the Bank of Canada raising rates at break neck speed in the name of inflation is both pathetic and criminal.

  • Giuss 6 days ago

    I immigrated here a couple of months ago. This was such a downgrade for me and I really empathize with you people how you can survive this economy. I’m leaving soon :’)

  • Concerned Citizen 5 days ago

    “The gap between inflation and wages has never been this large”.
    **Graph convienently only goes back to 2014 and not even into any other previous recession in history.

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