Inflation leaving you behind?

Statistics Canada says wages increased by 14% in the 30 years between 1981 and 2011. The biggest rise came from 1998 to 2011, when average wages increased by about 38%, while inflation pushed up the cost of living by about 28% — a 10% net increase.

So how did you fare? Have your wages kept up with our rate of inflation?

According to Bank of Canada inflation data, someone earning $50,000 in 1992 should be earning about $72,480 in today’s dollars to have kept up. How about $50,000 five years ago? That’s $54,750 today. And a $50,000 wage-earner last year hopes they got a 1.16% increase to $50,580 this year. Now, 1.16% doesn’t seem like much, but inflation has been reasonably tame as of late — one of the reasons the Bank of Canada has been forced to keep interest rates low to stimulate our economy. They target a 2% annual increase in the cost of living.

The average wage in Canada is now about $45,000 a year, or $894.61 a week, StatsCan says. Trying to keep up with inflation and the increased cost of living can be a challenge for some, especially if you’re a banking or investment manager. According to StatsCan, growth in the number of employees in this occupation was 8% from 2006 through 2011 and salaries rose only 9% over that same period — to an average of $69,992. This compares to an increase in the Canadian Consumer Price Index (CPI) of 10%, meaning salary growth didn’t even keep up with inflation.

Topping the list of high-flying jobs over the 2006-2011 span was, believe it or not, librarians. Librarians had a 39% increase in their salaries in that period, to an average of $62,109. It seems Kobos and iPads have nothing on books, bricks and mortar.

In theory, the 14% inflation-adjusted wage increase since 1981 is great, as it suggests our standard of living has been increasing because incomes are rising by more than the cost of basic goods and services. But in practice, most of us know that

Librarians had a 39% increase in their salaries [between 2006-2011]

our spending has been rising quite handily in recent years, not so much because of inflation, but fuelled primarily by debt and the sense of confidence that we’ve had because our housing market has been so robust. Canada’s debt-to-income ratio (total household debt, including mortgage, divided by annual household income after taxes) recently clocked in at 165%, a record high.

One of my big worries is that people may keep increasing their consumption at the same pace in the coming years, to the detriment of debt repayment and retirement savings. One of my bigger worries is the opposite — that people stop spending at the same pace and an already tentative Canadian economy loses momentum. Both scenarios are problematic, but in personal finance, as in life, it’s nice to have a happy medium.