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Inflation is winning the battle with earnings

Earning growth is lagging inflation in Alberta

By Rob Roach, ATB Economics 1 November 2021 1 min read

High rates of inflation have been in the headlines for a few months now. And for good reason.

While the first few spikes in inflation earlier this year were largely a matter of prices getting back to where they would have been if not for the disruptions caused by the pandemic, the recent increases are more worrisome because they are pointing to a sustained spike in the cost of living.

But inflation is only part of the story. We also need to know what's going on with earnings.

Before going any further, it's important to stress that we are talking about average earnings. Some workers are earning less than they were a year ago, some more. Not everyone is in the same boat.

With that in mind, if wages and salaries are keeping pace with or, even better, running slightly ahead of price increases, some of the pain brought on by high inflation is mitigated. Not all the pain goes away because high inflation also affects, for example, income redistribution, borrowing costs, the value of savings and government spending.

So what’s been happening with earnings vis-à-vis inflation?

As of this August, average earnings in Alberta were about 6.6% higher than they were at the start of 2019 while average prices were about 7.5% higher. The gap means the average paycheque (if you are lucky enough to have one) is not paying for what it was back at the start of 2019.

What’s next?

On the inflation side of the equation, it's likely to get worse before it gets better with inflation staying relatively high well into 2022, if not longer.

On the wages front, we should see some growth, but it's unlikely to keep pace with price increases over the short-term. This will have the biggest impact on low-income households and those moving from temporary government income support back to low-wage employment.

Answer to the previous trivia question: The intense fear of Halloween is called samhainophobia.

Today’s trivia question: Which billionaire is the current front-runner to become the world’s first trillionaire?


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