Inflation is rising but wage increases are still lagging behind increases in the cost of living. Workers are in this position despite the unemployment rate being close to a record low, which should lead to higher wages.
Lower unemployment rates should push wages up, as employers compete to hire qualified workers, but that’s slow to happen this time. Canada’s unemployment rate recently declined to 5.8 per cent and is expected to average 5.8 per cent this year and next. Canada hasn’t had this low a jobless rate since 1974.
The last time Canada’s joblessness came close to this was 10 years ago, when the unemployment rate fell to 5.9 per cent. Even though inflation was at comparable rates of just over two per cent at that time, wage increases averaged over 3.5 per cent, which meant workers were seeing decent real wage increases.
It’s a different situation today. In the first three months of this year, consumer price inflation averaged 2.1 per cent, but wage settlements have averaged just 0.8 per cent. Workers are experiencing real wage losses and, consequently, a decline in their standard of living.
Inflation has climbed in recent months, mainly due to rising gas prices. Gas prices in March and April of 2018 were 17 per cent higher than a year ago, or about 20 cents per litre higher. This pushed consumer price inflation up to 2.3 per cent in March. Excluding gasoline, inflation would have been just 1.8 per cent, which means there aren’t a lot of underlying inflation pressures. This may be a relief to people at the Bank of Canada, who have a mandate to keep underlying inflation under control, but it isn’t much relief to working families who still have to pay higher prices at the pumps.