The doubters who dismiss Canada's recent inflation surge as a short-term blip have insisted that one of the key missing ingredients is accelerating wage growth. Well, don't look now, but it's accelerating.
Most observers looking at Statscan's monthly Survey of Employment, Payrolls and Hours (SEPH), released Thursday morning, will focus on the lack of job creation that has become a pervasive theme in Canada's labour market: The survey – which relies on data from actual employer withholdings from paycheques, and is widely considered more accurate than Statscan's more widely publicized Labour Force Survey of households – indicated an 18,500-job decline in non-farm payroll employment in April, consistent with the 28,900 decline that the earlier Labour Force Survey had reported for the same month.
Over the past six months of SEPH data, employment has risen by less than 3,000 jobs – an absolutely puny amount, and a big reason many people have questioned whether the economy really has any underlying momentum to support rising inflation.
But while job creation has become more elusive, the SEPH shows that wage growth has become less so. Average weekly earnings were up 0.5 per cent in April from March, just the latest in a series of strong increases in recent months. Average earnings were up 3.3 per cent from a year earlier – the fastest year-over-year growth in 19 months, and more than triple the pace seen last summer. It looks like the days of stubbornly low wage growth that could be relied on to keep a chill on inflation for much of last year are firmly behind us.
Now, 3.3-per-cent year-over-year wage growth is hardly spectacular by historical standards; it merely matches the 10-year average. But the trend is unquestionably upward: Five of the past seven months have posted month-to-month growth of roughly double the 10-year average. You have to go back to 2004-05 to find a similar period of sustained acceleration.
Following that 2004-05 wage growth spurt, the country emerged from what had been a lacklustre period of job creation and added 440,000 jobs to non-farm payrolls over the next 12 months. That matched the highest growth pace for any 12-month period since Statscan introduced the SEPH in its current format in 2001. The inflation rate also accelerated, averaging 2.4 per cent over those 12 months, up from 1.6 per cent at the tail end of the growth spurt.
Yes, looking at a single similar instance is hardly a broad sample from which to extrapolate. But it's certainly food for thought. Wages may evolve into more of a factor in Canada's inflation outlook in the coming months than many prognosticators have been assuming.
It's also instructive to look at which segments of the economy are seeing these wage pressures emerging. Some of the biggest year-over-year wage gains are coming from the likes of oil and gas, rail transportation and construction – sectors with specialized-skill needs and strong employment growth over the past year. Perhaps this is another piece of evidence in the continuing discussion about skilled labour shortages in Canada – which might only exist in pockets, but are nevertheless bound to get more acute, and increase wage pressure as the economy accelerates.
Over all, the wage inflation pace is probably still too low to declare it a major sustaining force of higher inflation in Canada just yet. But by the same token, it no longer looks to be a component that can be counted on to tone down the overall price momentum and offset other faster-rising inflationary pressures. Wages are back in the inflation discussion again.