Bank of Canada to weigh wage growth impact on upcoming interest rate decision

Steady Increase in Wages May Exacerbate Inflationary Pressure

In September, Canadian wages maintained their upward trajectory, extending a trend that has provided some relief to households grappling with rising prices. However, this persistent wage growth may also compel the Bank of Canada to consider further interest rate hikes in its ongoing battle against stubbornly high inflation.

Sustained Wage Growth: According to the latest monthly labor market report by Statistics Canada, average hourly wages in Canada increased by five percent compared to September of the previous year. This marks the seventh consecutive month in which wage growth has outpaced the rise in prices, as measured by Statistics Canada’s consumer price index.

Strong Job Market Performance: Alongside this sustained wage growth, Canadian employers added approximately 64,000 positions in September. This figure, which triples the consensus forecast from Bay Street, showcases the robust performance of the job market. Notably, the jobless rate remained unchanged at 5.5 percent. While it has edged up from its recent low of around five percent, this figure is historically strong and suggests that the Canadian economy maintains healthy momentum.

Bank of Canada’s Inflation Concerns: 
Despite concerns that higher interest rates could potentially trigger a recession, the Bank of Canada remains focused on addressing inflation. The consumer price index surged to a year-over-year increase of four percent in August, up from 3.3 percent in July and 2.8 percent in June.

The Inflation Target: Bank of Canada Governor Tiff Macklem is tasked with maintaining inflation at a year-over-year pace of two percent, a target that has eluded the central bank since before the onset of the pandemic. Macklem has repeatedly emphasized that failing to rein in inflation now could lead to entrenched expectations of elevated price increases, making future inflation control more challenging.

The Bank of Canada’s next decision on interest rates is scheduled for later this month, with a watchful eye on wage growth and its potential implications for inflationary pressure.

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