When the cost of living began to surge last year, prompting many people to demand bigger raises from their employers, unionized workers who were locked into contracts were left to watch as inflation ate away at their paycheques.
Now it’s payback time, and recent union settlements have featured massive wage gains that could complicate the Bank of Canada’s efforts to get inflation under control.
In July, the latest month for which the federal government has compiled data, union settlements included an average wage adjustment of 7.1 per cent in the first year of new contracts, the highest since March, 1991. Likewise, the average annual wage adjustment over the duration of the contracts hit 5.1 per cent, also a 32-year high.
With the annual inflation rate down from its peak of 8.1 per cent last June, but not yet tamed – as inflation’s resurgence in July and August showed – economists and the Bank of Canada are closely watching rising wages. That’s because in the absence of higher productivity, wage gains could get passed on to consumers through higher prices, feeding a dreaded wage-price spiral.
That hasn’t happened yet, but at the Bank of Canada’s policy meeting earlier this month, members of the governing council looked at whether “wage growth was reducing the downward momentum in core inflation,” according to minutes released Wednesday.
At the least, hefty wage settlements could lead to more labour disputes in the year ahead, according to a note by RBC economists Robert Hogue and Rachel Battaglia.
“The jump in recent wage settlements could entice other workers and their representatives to be more aggressive with their demands – especially when workers can soak up a lot of wage increases before catching up to inflation,” they wrote.
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