Economics: Wages Start Lagging Inflation
Initial labor market data for 2017 reveals weakness in real wages, which fell 0.6% year over year in January 2017, an erosion that resulted primarily from an acceleration of inflation to 4.72% that same month. In this context of resurgent inflation, the 1,361 wage reviews conducted under federal jurisdiction during the first two months of 2017 led to a 0.5% real-term reduction in the wages of the 374,000 workers covered by those negotiations.
In this week’s Economic Outlook we analyze the prospects for the remaining reviews in 2017, which should begin to react to the higher levels of inflation we expect in the coming months.
In that regard, the report on prices for the first half of March showed the 12-month headline rate of consumer inflation climbing to 5.29%, the highest level seen for that same fortnight since the 5.98% rate of 2009. Most of the increase emanated from a spike in the 12-month rate for energy prices, which were 17.57% higher in mid March, in contrast with the 2.24% decline in energy prices reported for the same point of 2016.
The most pronounced increases in energy products were registered in gasoline, as high octane fuel prices rose 31.2% year on year at the same time as low octane Magna gas prices were hiked 25.8%. Natural gas was also much higher, rising 26.4% year on year. In addition, the prices of food and non food goods remained a major source of inflation, as they have been for a number of months.
We at GEA expect prices will remain high throughout much of 2017, largely in response to the upward adjustment of prices for the country’s two grades of gasoline and continuing pressures in the case of goods prices.
Last week also saw the release of the report on aggregate demand for year-end 2016, which showed growth of only 1.6%, less than half the 4.1% increase recorded for 2015. This weakened outcome came as a result of a significant slowing of growth in both gross fixed investment (0.4%), and exports (1.2%); both of these results mark a significant step-down from the 2015 increases of 4.3% and 10.4%, respectively. Nevertheless, weakness in investment and exports were slightly offset by consumption, whose 2.5% increase for 2016 marked a slight improvement from that of 2015 (2.2%).
Now read on...
Register to sample a report