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Modest inflation outstrips wages and Canada Social Transfer

Statistics Canada reported recently that the annual inflation rate remained 2.9 per cent and the Bank of Canada's core rate remained 2.1 per cent in November.

The monthly increase in consumer prices slowed to 0.1 per cent in November from 0.3 per cent in October. The monthly increase in core prices slowed to 0.1 per cent in November from 0.2 per cent in October.

Inflation remains modest and should not deter the Bank of Canada from keeping interest rates low, and perhaps reducing them, to support our fragile economy and labour market.

However, even this modest inflation exceeds the small pay increases received by Canadian workers. While the Consumer Price Index rose 2.9 per cent last month, the Labour Force Survey indicates that average hourly wages rose only 2.4 per cent. In Ontario, inflation exceeds wage growth by a full percentage point: 2.5 per cent versus 1.4 per cent.

The Minister of Finance announced that, while the Canada Health Transfer and Equalization will be tied to nominal economic growth (projected to be about 4 per cent annually), the Canada Social Transfer for post-secondary education and other provincial services will grow at only 3 per cent annually. Today's inflation figures beg the question of whether that will even cover inflation plus population growth.

Update (December 20): Interviewed on the Business News Network.

This article was first posted on Progressive Economics Forum.

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