Bank of Canada closely monitors wages

Rep. Carolyn Rogers warns that rising wages threatens to trigger entrenched inflation

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It looks like wages are poised to determine how quickly the Bank of Canada raises interest rates over the remainder of the year.

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Bank of Canada Deputy Governor Caroline Rogers said last week that the central bank was concerned about a wage rate vortex, as workers benefited from Standard level for vacancies To insist on salary increases commensurate with the sharp rise in the cost of living this year. This can cause inflation to solidify, as employers will likely seek to offset higher labor costs by charging more for goods and services.

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distance September 8 economic speech In Calgary, Rogers described the labor market as tight, which contributed to the central bank’s determination that demand had outpaced the economy’s ability to keep pace with demands. This fuels inflation, which is recorded at the annual rate 7.6% in Julyslower than the previous month, but still well above the Bank of Canada’s 2 per cent target.

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Rogers told reporters that workers “look at the rate of inflation and what it’s doing to their purchasing power and budgets, and they’re looking at the same tight labor markets and they’re thinking ‘I need a raise’.”

Rogers’ comments came a day after the Bank of Canada issued a statement It chose to raise the benchmark interest rate by three-quarters of a percentage point, the second consecutive increase after the one-percentage point increase in July. One reason to raise interest rates so quickly is to prevent those expectations from taking root, said Governor Tev McClem, and he bet that any pain that would occur now would be less than what is needed to squash inflation if households and businesses lose faith in the two-percent target.

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Rogers said that “entrenching” inflation expectations “would hurt the economy.”

However, Rogers emphasized that it is not the place for the central bank to advise on setting wages. This point of focus came on the heels of controversial comments made by McClem earlier this summer that some union leaders interpreted as encouraging employers to curb wages.

“As a business, you don’t plan to stay at the current rate of inflation,” McClem said. July 14 Q&A session Hosted by the Canadian Federation of Independent Business. “Don’t build that into long-term contracts. Don’t include that in wage contracts. It will take some time, but you can be confident that inflation will come down.”

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Another explanation was that McClem was simply urging his audience to believe him when he said the Bank of Canada would do what was necessary to control inflation, even if it meant courting a recession.

There are signs the economy is slowing. The labor market relaxed somewhat in August, like the Canadian economy 40,000 jobs lostcausing the unemployment rate to rise to 5.4 percent, a far cry from the 15,000 jobs Bay Street economists had been expecting.

The monthly decline was the third in a row, which tends to be indicative of a decline, according to Royce Mendes, an economist at Desjardins group. However, Mendes added that the average hourly wage rose 5.6 percent from August 2021, a faster rate than analysts had expected.

“We’ll be watching wages closely,” Rogers said. What we need is for supply and demand to return to equilibrium across the economy and especially in the labor markets. This will relieve pressure on wages.”

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