The International Monetary Fund, an international financial institution, has lowered their expectations for global economic growth in 2023. The global average is expected to be around 1.6%, and both the United States and Canada are expected to see economic growth below 1% for 2023. This would be what economists call “a soft landing,” when central banks are able to lower inflation without causing a recession. If central banks continue to increase interest rates, we can expect economic growth to be even lower than financial institutions are forecasting right now.
Unemployment was up slightly to 5.2% this fall, above this summer’s low of 4.9%. We’re continuing to see large numbers of job vacancies in sectors with slow wage growth, such as health care and food services. The federal government is looking to increase targets for immigration to help fill labour market vacancies.
The average hourly wage increased by 5.6% in October 2022 compared to October 2021. This change fell short of the Consumer Price Index (CPI), which calculated the rise in consumer prices during the same time period to be 6.9%. Statistics Canada analysis found that higher wage workers, those already making over $40/hr, were more likely to have received a wage increase than those workers earning $20/hr or less. Non-unionized workers are also more likely to have received a wage increase so far this year. This is due in part to the fact that unionized workers must wait for bargaining periods to bargain higher wages.
Uneven impacts of inflation
Inflation impacts lower income households more severely than higher income households. This means that wage growth at the lower end of the spectrum actually needs to increase faster than CPI to protect purchasing power for these workers. While middle- and higher-income workers are also affected by higher costs, research shows that these households tend to be able to reduce their spending on necessities by buying no-name brands and using coupons. Workers with lower incomes are more likely to be economizing already and so are unable to reduce their budgets without cutting out necessities.
The Bank of Canada has increased interest rates six times so far in 2022, from 0.25% in January 2022 to 3.75% in October 2022. At the end of October, the Bank of Canada reported that while inflation was slowing down according to some indicators, it was still too high. If prices remain high along with low unemployment and moderate wage growth, we can expect the Bank of Canada to increase interest rates again in early December.