Wages for most Canadians are outpacing inflation, PBO says

A Parliamentary Budget Officer (PBO) report has found that COVID-19 supports boosted Canadians’ spending power during the pandemic, and that rising wages have since outmatched inflation for higher earners.

“By the end of March 2021, the launch of, or increase in, income benefits associated with the COVID-19 pandemic bolstered the purchasing power of all households,” said PBO Yves Giroux.

“By the end of the first year of the pandemic, disposable income had increased faster than consumer prices.”

Canada’s auditor general Karen Hogan estimated in late 2022 that $4.6 billion in COVID-19 benefits was paid to people who were not eligible, while another $27.4 billion in payments to individuals and businesses should be further investigated.

But then things shifted, as pandemic supports were phased out and costs started to rise.

Inflation in Canada peaked in June 2022, with an annual rate of 8.1 per cent, according to Statistics Canada. At that time, COVID-19 benefits had ended and income tax and the rising inflation resulted in a 5.7 per cent decrease in purchasing power for all households, the PBO said in a statement released Thursday.

1:53 $4.6 billion in COVID-19 benefits went to ineligible recipients: AG

Purchasing power for households in the bottom 20 per cent of income decreased the most at 25 per cent, while those within the highest 20 per cent of income only decreased 0.5 per cent.

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“By the end of December 2022, nearly three years after the start of the pandemic, rises in disposable income outpaced the impact of higher inflation for all households, improving purchasing power by five per cent,” Giroux said. “However, households in the lowest income group relied significantly on government transfers to preserve their purchasing power.”

Purchasing power in the fourth quarter of 2022 was up 9.4 per cent for households in the first two income brackets compared to before the pandemic, while disposable income increased relative to consumer prices by 16.7 per cent for all Canadians and 10.9 per cent for the first two income brackets.

According to the report, wage increases alone outpaced the rate of inflation for households in the three highest of five income levels during the same period.