Managing The Gap Between Wage Growth And Inflation

The gap between wage growth and cost of living continues to be an issue as inflation reached 2.3 percent in May, led by higher gas and energy prices.

The latest Stats Canada data revealed that wages grew 1.4 percent year-over-year.  That means there’s a decline in real wages when you adjust for inflation.

How have we managed the gap between wage growth and inflation?  We’re borrowing at record levels on everything from housing, cars, and discretionary spending.  With rock-bottom interest rates, many home owners think nothing of rolling over excessive consumer spending into their mortgage.  The home equity line of credit has become a second income.

I looked at my own personal inflation rate and noted that my wages have been frozen since July, 2012.  That means zero income growth to battle the effects of inflation, not to mention the needs of a growing family.

Related: Why our debt to income ratio is misleading

The biggest inflation offenders:

Home insurance is up 30 percent as our area was hit with flooding and hail damage last year.  Of note is a new mandatory $300 hail insurance premium.

The price of a barrel of oil hit $115 this month and that has spilled over to an increase at the pumps.  Our own fuel consumption is up 23.7 percent this year, but it’s tough to say whether that’s due to a price increase or more driving.  It’s likely a bit of both.

(Do higher gas prices affect your summer driving plans?)

The electricity and gas bill – courtesy of Enmax – is up 20.2 percent.   I’ve gone with a floating rate for gas and saved a ton of money over the years as natural gas prices were at historical lows.  However, prices went up (a lot) this winter and I paid for it.

Our water bill is up 12.9 percent on higher consumption.  I blame the children.

Grocery spending has increased 12.2 percent.  Food is not included in the “core” inflation rate, as it is deemed too volatile.  Indeed, we’ve seen prices for beef and chicken rise more than 10 percent this year.  Even (gasp!) bacon prices are up a shocking 20.5 percent.

We spent 300 percent(!) more on kids’ activities this year as our oldest started piano lessons, ballet, and pre-school, while our youngest tried gymnastics.  I expect these costs will continue to increase as our kids get older.

A side-effect of all the extra activities in our schedule meant a 6.4 percent increase in restaurant spending this year.

Related: What’s busting your budget?

In the category of things that only kept pace with inflation, our property taxes went up just 1.45 percent this year.

And in the surprise of the year, our car insurance premiums went down 6 percent (for no particular reason).

Final thoughts

The gap between wages and expenses is one reason why I focus on creating a second income stream in my spare time.  The extra income allows us to live a comfortable lifestyle while still achieving our savings goals.

If wages continue to stagnate, it will become even more difficult to keep up with rising inflation without going into debt or making a serious reduction in lifestyle.

How do you combat your personal inflation rate?