Higher interest costs chew up wage gains: NBF

Wage growth was strong in the second quarter, but high interest costs continued to weigh on consumption, says National Bank Financial Inc.

Recent data on household wealth trends from Statistics Canada revealed the rising cost of servicing household debt consumed about 40% of Q2 wage growth, the bank’s economists noted in a report. As a result, household consumption growth was relatively weak.

Furthermore, “even as interest rates begin to fall, monetary policy remains far too restrictive for this upturn to occur quickly,” the report said.

“Despite the decline in bond yields during the third quarter in anticipation of central bank rate cuts, five-year mortgage rates remain around 4.5%. This means that while holders of adjustable-rate mortgages are enjoying a respite, holders of fixed-rate mortgages continue to experience an interest payment shock,” the report said.

As the labour market weakens, wage growth is expected to slow too, the report said. Higher interest costs will remain a headwind to household income growth, “limiting the potential for a strong rebound in consumer spending growth.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.