Wage growth picking up

The sharp slowdown in the pace of hiring in the October Labour Force Survey caught the headlines, but the more important development was the sharp rise in fixed-weight average hourly earnings. Based on our seasonal adjustment, the fixed-weight index, which attempts to correct for the distortions that the pandemic has had on the normal average hourly earnings series, rose by 0.6% m/m. While the annual growth rate remained at a modest 2.2%, the 3m-on-3m annualised rate jumped to 3.9%. In a speech last week, Deputy Governor Lawrence Schembri confirmed that, based on the Bank’s assumption that underlying annual productivity growth is close to 1%, the Bank would be concerned about the inflationary implications of wage growth when it rises above 3% y/y. The strong monthly gains in the fixed-weight index last December and January should prevent the annual rate from reaching that level in the next few months, but there is a strong chance that annual wage growth will surpass 3% by the end of the first quarter. Nevertheless, given the short-term risks to the economic outlook from the recent removal of the government support programs and the extreme weather in British Columbia, for now we remain comfortable in our view that the Bank will wait until July to raise interest rates.