Canadian households will have to start cutting back and not because of higher rates. It’s the opposite, with low rates now producing toxic price growth for goods and services. Statistics Canada (Stat Can) data shows the average weekly wage saw a substantial increase in December. A closer look shows that rate failed to keep up with the elevated rate of inflation. Households make less in real terms than they did last year, and will have to reduce consumption.
Canada’s Average Weekly Wage Is 3.5% Higher
Canadian households are earning, showing solid annual wage growth in nominal terms. The average employee reported weekly earnings reached $1,276 in December. Weekly wages have increased 0.1% ($1.80) from a month before, and are 3.46% ($42.72) higher than last year. It sounds like big growth, and that’s how Canada’s national statistics agency framed it. However, you might have noticed annual growth is lower than inflation.
Canadian Inflation Is 4.7%, The Highest Rate In Decades
Canadian wages are rising quickly, but the cost of goods is increasing even faster. The consumer price index (CPI) shows annual growth of 4.7% in November. Unfortunately, we don’t have December data yet. Failing the cost of everything crashed in December, it will be at least as high as November. Conservatively speaking, inflation greatly outpaces wage growth in almost every scenario.
Canadian Real Average Weekly Wage Change
The annual percent change for Canadian weekly wages, adjusted for inflation.
Source: Statistics Canada; Better Dwelling.
Canadians Are Making Less Money In Real Terms
In real terms (a.k.a. inflation adjusted), Canadian households earn less than last year. Real annual wage growth was down 1.26% for December and 3.06% lower than the peak reached in April 2020. December is the ninth consecutive month where inflation outpaced wages. It’s also worth mentioning that’s adjusting with CPI, which tends to underreport according to a Big Six bank.
The Bank of Canada (BoC) is maintaining low rates to help drive more consumption. They’ve now done it so long, excess consumption is creating non-productive price growth. Demand isn’t increasing, people are just spending more money on the same goods. Since this is non-productive growth in prices, wages are failing to keep up with the increase. That’s been the case for almost a year now. Coincidentally, one of Canada’s biggest banks just said rates should have been climbing a year ago.