Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Sunday, August 25, 2013

Canada's Inflation Rate Is Low, But Still Eating Your Pathetically Small Wage Gains

Inflation has been very tame in Canada over the past year, coming in at the low end of the Bank of Canada’s target, but not low enough to allow Canadians to keep much of their growth in earnings.

According to Statistics Canada data released Friday, consumer prices have grown 1.3 per cent in the past year. But average wages have grown 1.8 per cent in the same period, meaning Canadians on average have seen real wage gains of a paltry 0.5 per cent in the past year.

And this isn't a brand new phenomenon. Inflation has eaten some or even all of Canadians’ wage gains at various points since the financial crisis, mostly due to weak growth in the size of paycheques.

At some points over the past few years, real wages (meaning wages adjusted for inflation) were actually falling. But inflation has slowed since then, and salaries are now growing faster than inflation — though barely.

This is a problem because stagnant wages can harm the economy, especially an economy as reliant on consumers as Canada’s.

Let’s take a look at retail sales. The latest data shows sales nosediving in June, falling an unexpected 0.6 per cent (that's a large drop for a single month). StatsCan blamed the fall on the Alberta floods and a construction strike in Quebec, but that doesn’t really explain why Ontario saw the steepest drop in retail (down 1.4 per cent in a single month).

Analysts say consumers are showing signs of strain.

“Canadians are feeling pessimistic when it comes to their finances and jobs,” Corrine Sandler, CEO of market research firm Fresh Intelligence, told the Globe and Mail. “We are in a cautious frame of mind and see this continuing, even sliding further into the holiday season. … We will be more frugal this festive season, no doubt.”

Wage stagnation threatens the already strained housing market as well. According to the Canadian Real Estate Association, average home prices jumped 8.4 per cent in the year to July. That’s four-and-a-half times higher than wage growth in the same period.

Inevitably, this will mean a decline in housing affordability. And that could mean slower sales and lower prices, and perhaps that great housing market correction some economists have been warning about for years.

Making matters worse, mortgage rates are now rising. With the U.S. economy recovering, bond yields have been going up, and that has increased the cost to Canada's banks of lending out mortgages. The big banks have now been through several rounds of mortgage rate hikes, and more are expected.

The one bright spot of good news here is that, with such tame inflation, the Bank of Canada is unlikely to make things worse by raising the base interest rate.

In the U.S., the Federal Reserve has been looking at the country's improving economy and making noise about withdrawing some of the fiscal stimulus it has had in place for years at this point. Not so in Canada, where Bank of Canada Governor Stephen Poloz has so far stressed the need for continuing the country's stimulative fiscal policy (i.e. low interest rates).

"As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate," Poloz said last month.

Significant slack in the Canadian economy? Check. Inflation muted? Check. Imbalances in the household sector? Yup. And with wages growing at just slightly above zero, don't expect Poloz's outlook to change any time soon.

Original Article
Source: huffingtonpost.ca/
Author: Daniel Tencer

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