KATRINA COULD SCUTTLE SALARYHIKES

3.4% AVERAGE PROJECTED

Rising inflation rates and uncertain economic forecasts can’t cloud the financial outlook for Canada’s workforce. A survey released by Hay Group Ltd. found that Canadian employers are planning to reward their staff with pay raises in 2006.

According to the survey of more than one million employers, employees in Alberta can expect the highest salary increases, with an average of 3.8%. British Columbia, Manitoba, Ontario and Quebec all project raises on par with the national average of 3.4%. Only Saskatchewan and Atlantic Canada are predicting smaller raises of 2.8% and 2.4% respectively.

In spite of these encouraging figures, some experts warn Canadians to curb their optimism. Dr. Bernie Wolf, director of the International MBA program at York University’s Schulich School of Business, says the forecasts may not be as reliable as they were before Hurricane Katrina drove oil and gas prices to an all time high.

“Even though the effects of Katrina will be relatively shortlived, oil prices have just not come down as much as expected,” Mr. Wolf says. “ These prices are considerably raising the inflation rate.”

Mr. Wolf estimates the inflation rate for the fourth quarter will be around 3.4%., up significantly from 1.9% six months ago.

“ The Bank of Canada uses an index that calculates the inflation rate based on non-volatile industries,” Mr. Wolf says. “Given what is happening in the energy sector, I’m afraid they may be underestimating inflation.”

Karl Aboud, national director of reward consulting practice for Hay Group Canada, concedes that rising inflation may have an adverse effect on salaries. “This forecast is not as accurate as it would have been one month ago. Inflation rates are changing so much that it’s impossible to predict exactly what will happen right now.”

But he believes the outlook for Canada’s employees is still largely positive, noting Canada’s performance relative to the United States and Europe bodes well for future compensation trends.

Hay Group’s findings are in line with those of Mercer Human Resources Consulting, which predicted a net national salary increase of 3.4% in its recent study.

Financial Post