Rising inflation is making us poorer. Will wages ever catch up?

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This article was published 20/04/2022 (980 days ago), so information in it may no longer be current.

Wages across all industries have failed to keep pace with inflation, which hit a three-decade high last month.

In March, inflation climbed to 6.7 per cent year over year thanks to the pandemic, supply-chain struggles, and the war in Ukraine.

During the same period, average hourly wages rose 3.4 per cent, just half the rate of inflation, according to the latest data from Statistics Canada. Meanwhile, the cost of certain necessary goods is way up — groceries climbed 8.7 per cent. Gas rose a whopping 39.8 per cent.

Experts call the ratio between prices and wages purchasing power. That power diminishes as the gap grows, which is what is happening now.

Simply put, you’re making less money.

“Workers need a three per cent increase right now to make up for the losses, which is unlikely to happen,” said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.

Instead, he said, workers will likely take a temporary pay cut, in essence, as inflation soars for the next few months as wages fall behind. “It will be difficult to recoup this three per cent difference.”

Some industries are keeping wages up with inflation better than others.

Information and IT workers are seeing consistent wage gains, Macdonald said. Supervisors and wholesale trade workers are also getting salary increases. This includes producers and retailers managing supply chain issues, which have become an ever-present challenge requiring more time and greater resources.

Food and beverage manufacturing also saw an upswing in wages as in-person dining decreased and stacking products in grocery stores became more frequent and necessary to help with higher demand from consumers, Macdonald said.

And real estate agents saw “huge wage gains” with the high cost of housing. Macdonald expects they will continue to do well moving forward.

On the flip side, employees manufacturing durable items such as automobiles saw little in wage increases.

Public sector workers, which include education and health care professionals, also saw “very low wage gains” and likely won’t see a substantial wage increase in the near future.

“With the new inflation numbers, now 75 per cent of workers are seeing real wage losses because of how much inflation has gone up,” Macdonald said.

Douglas Porter, chief economist and managing director of BMO Financial Group, said almost every industry will see wages go up at this point, some more than others. “It’s reasonable to expect a pretty comprehensive broad based upward pressure on wages.”

He called the sizable gap between wage increase and inflation “highly unusual.”

“It’s especially unusual given how tight the labour market is when you look at the low unemployment rate and the number of job vacancies,” he said. “Either inflation is going to run away rapidly or wages will rise rapidly. That gap between prices and wages can’t be sustained for long.” If it does, people will be unable to afford everyday goods and the cost of living will be unattainable.

Porter said sectors with high vacancy rates will face the biggest pressure to increase wages. These include the accommodation and food services sectors, which have a 7.5 per cent vacancy rate, and health care and social assistance jobs which have 6.4 per cent vacancy.

“Wherever there is a high vacancy rate there will be increased wage pressures to attract more workers and for retention,” he said.

Anil Verma, a retired professor of industrial relations at the Rotman School of Management, expects the travel, food and hospitality sectors — which are having difficulties hiring — will pass the cost of increased wages on to consumers.

Bea Bruske, president of the Canadian Labour Congress, expects employees and unions across all industries will press for improved wages.

“At the end of the day workers can organize. There’s more strength in numbers to negotiate collective agreements,” she said.

Many workers have expired collective agreements that are now being negotiated, especially in the public sector, Bruske said.

Jim Stanford, director of the Centre for Future of Work, said few collective agreements have a cost of living adjustment, meaning wages don’t automatically change to offset inflation.

While employees will ask for higher wages, Stanford isn’t optimistic employers will give the three per cent needed.

Look at public service workers in Ontario, for example. They have a pay cap of one per cent for three years, under Bill 124, and will find it legally challenging to ask for higher salaries, he said.

For some, it might be easier to negotiate a higher salary at a new job than to get a raise from an existing employer.

Perhaps with that in mind, some employers are being proactive in light of the latest data.

At Ascend Fundraising Solutions, a software company that helps charities raise money, CEO Daniel Lewis announced a cross-board five per cent bonus for employees the day before the latest inflation numbers were released.

“It’s not an act of retention. It’s just the right thing to do,” Lewis said.

Clarrie Feinstein is a Toronto-based staff reporter for the Star. Reach Clarrie via email: clarriefeinstein@torstar.ca

Rosa Saba is a Toronto-based business reporter for the Star. Follow her on Twitter: @rosajsaba