Wages in Canada are rising. Will inflation, interest rates follow suit?

Wages are showing signs of climbing as inflation makes life unaffordable for Canadians, buy economists say that might provoke the Bank of Canada to hike interest rates even more.

Signs of wages ticking higher could be just the balm some Canadians need to offset searing hot inflation.

But just as incomes might be ready to catch up after years of pandemic pay lags, economists say fears of rising wages propagating rising prices could prompt swift action from the Bank of Canada to stifle growth before it happens.

Experts warn interest rates might have to rise higher or more swiftly to ensure rising labour costs aren’t passed on to consumers in an endless inflation cycle.

Friday’s jobs numbers show that, as expected by economists, wages grew at a faster pace, with average hourly wages rising 5.2 per cent to $31.24 year over year compared with a 3.9 per cent annual increase in May, according to Statistics Canada.

In comparison to wage growth prior to the pandemic, June recorded the fastest growth since the collection of comparable data in 1998. However, the rise in wages in June was still below the most recent inflation rate of 7.7 per cent reported in May.

The Canadian Federation of Independent Business (CFIB), meanwhile, reported in its most recent Business Barometer report in late June that employers are expected to raise wages 3.7 per cent over the next year — the highest annual level recorded by the CFIB.

Brendon Bernard, senior economist at job search site Indeed Canada, says the conditions are ripe for employees to earn higher wages either from their current employer or through changing jobs.

In an interview with Global News, he points to the “tightness” of the labour market, with a low unemployment rate and sizeable number of vacancies, as putting workers in the driver’s seat when it comes to pursuing opportunities.