Payroll pressures could turn short-term inflation into a long-term economic complication

The pandemic has increased goods and services prices, but for many employees it has also increased wages.

In the pandemic’s first year alone the average hourly wage rate in Canada grew 6.3% – the highest annual growth in the 24 years Statistics Canada has been collecting the data.

A recent report from LifeWorks (formerly Morneau Shepell) says that employers expect to raise salaries an average of 2.7% in 2022.

Some of the industries hit hardest by worker shortages and COVID-19 restrictions, including accommodation and food services, wholesale trade, transportation and construction, are expected to have the largest wage increases.

While inflation is high, wage growth has outpaced inflation in 42% of occupations over the past two years, according to Statistics Canada. Only since March 2021 has inflation begun to outpace wage growth. From the start of the pandemic up to that month, wages were growing by as much as 11% annually while Canadians were experiencing deflation, a decrease in the price of goods and services.

However, classifying higher paycheques as wage inflation may be misleading.

“I don’t want to call it wage inflation because that would be a misstatement of what is going on,” said Werner Antweiler, professor of economics at the University of British Columbia.

He said there’s been an employee exodus from many industries, and people are choosing not to return to work. Employees...

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