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Wages not keeping up with inflation

Wages not keeping up with inflation

Posted on: 4/18/2019 | Author: ATB Financial's Economics + Research Team

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When it comes to inflation, the story of Goldilocks and the Three Bears is instructive. If your goal is to stimulate economic growth, you don’t want inflation to be “too low” or “too high.” You want it to be “just right.” According to the Bank of Canada, an inflation rate of two per cent (as measured by the Consumer Price Index) is “just right,” while inflation below one per cent is “too low” and inflation above three per cent is “too high.”

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From this perspective, the 2.3 per cent year-over-year rise in Alberta’s Consumer Price Index in March is a positive sign. The national CPI rose by 1.9 per cent.

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However, because inflation erodes the purchasing power of the dollars we earn—by 2.3 per cent in just the last 12 months—it’s not something we welcome as consumers. Given this, it’s useful to see if the income we have at our disposal is keeping up with inflation.

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While there are many possible sources of income, including investments and government support programs, the wages earned by Alberta workers are a useful proxy. Average wages in Alberta have not grown as fast as inflation. As of January (the latest month for which wage data are available), average wages were actually down year-over-year by 0.3 per cent. The year-over-year increase in the CPI for January was 1.2 per cent.

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The fact that average wages are not keeping up with overall inflation is a challenge for many Albertans and points to the ongoing challenges facing the provincial economy.

​​Wages not keeping up with inflation | The Owl​​

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