Wages aren’t yet cooling in Canada as the job market loosens and output per worker slows, a scenario that the country’s central bank has warned may derail progress on inflation.

The average hourly wage offered for vacant positions was $27.25 in the first quarter, up 7.3 per cent from a year earlier, Statistics Canada reported Tuesday. Part of the jump was due to a shift in the composition of job vacancies to higher-paying offers from lower ones, the agency said. After adjusting for composition, Statistics Canada estimated offered wages are up 4.7 per cent year over year.

That matches other measures in the labour force and payroll surveys, which still show wages growing at a yearly pace of between 4.5 per cent and 5.5 per cent. Compensation pressures may lag the cooling labour market, as wages tend to adjust slowly to rising prices due to the length of contracts, and companies and job seekers weigh changing trends in the supply and demand for labour.

Still, the Bank of Canada has warned that without gains in productivity, or gross domestic product output per worker, annual wage gains of between four and five per cent are inconsistent with achieving the two per cent inflation target. 

Canada is mired in a productivity “emergency,” the central bank has said. Labour productivity has contracted in six of the seven past quarters, falling 0.3 per cent in the first three months of this year. While theories abound about the causes of the crisis, some have pointed to the country’s outsized investment in housing at the expense of technologies or equipment to make workers more productive.

At the same time, the data released Tuesday confirm that the labour market is loosening, which should eventually ease some compensation pressures in the months ahead.

Job vacancies fell 3.6 per cent to 648,600 in the first three months of the year, the lowest level since the first quarter of 2021. The job vacancy rate — the number of vacant positions relative to total labour demand — fell 0.2 percentage points to 3.6 per cent, the lowest level since the first quarter of 2020, just as the Covid-19 pandemic began.

Since peaking in the second quarter of 2022 — just after the Bank of Canada began aggressively hiking interest rates — the number of vacant positions has fallen by 334,980. The unemployment rate has also risen and job gains have lagged population growth.