Peak inflation rates in 2022 had a significant impact on Canadian wages, according to a new report from Statistics Canada. The Consumer Price Index rose by 6.8 percent on average that year, marking a 40-year high since 1982. Median annual wages decreased in most provinces and territories when adjusted for inflation, with tax filers reporting a 1.6 percent decline in median wages to $45,380. The report highlights that while wages may have technically gone up on paper, they did not stretch as far when inflation was taken into account, causing a substantial decrease in real annual wages for many Canadians.
The report attributes this decline in real wages to a recovery of employment in lower wage sectors in 2022, following periods of pandemic-related shutdowns in 2020 and 2021. Sectors such as arts, entertainment, recreation, accommodation, and food services experienced an increase in employment in 2022, with wage increases in these sectors but still remaining the lowest among all industries. While the Bank of Canada held its benchmark interest rate at five percent for the sixth consecutive decision, there are signs that inflation is easing, with the possibility of a rate cut at the next meeting in June if progress towards the two percent target is sustained.
Despite an overall cooling of annual inflation rates, Canadians in sectors less affected by the pandemic also saw significant declines in their inflation-adjusted median annual wages in 2022. Sectors such as education services and public administration experienced the largest declines of about five percent, while transportation, health care, agriculture, and construction also saw decreases ranging from two to three percent. The Northwest Territories had the largest decrease in median annual wages at 7.2 percent after adjusting for inflation, while regions like Nunavut, Quebec, and New Brunswick saw increases in wages.
The report also notes that wages rose for low-wage workers from 2021 to 2022 but declined for higher-wage earners. Workers in the upper-middle range of the earnings distribution saw the biggest wage hit when adjusted for inflation, while low-wage workers saw a 10.9 percent increase in earnings at the first wage decile and a 5.5 percent jump at the second decile. Despite the decline from 2021 to 2022, inflation-adjusted annual median wages were still higher in 2022 compared to 2019 due to relatively strong wage growth and low inflation observed in 2021.
Overall, the impact of peak inflation rates in 2022 on Canadian wages was significant, with many workers experiencing a decrease in real annual wages after adjusting for inflation. While certain sectors saw increases in employment and wages, lower wage sectors were still disproportionately affected. The possibility of a rate cut by the Bank of Canada in June signals efforts to address the impact of inflation on the economy. Moving forward, it will be important to monitor wage trends and inflation rates to ensure that Canadian workers are able to maintain their purchasing power and financial stability.
