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Union leaders are calling on the Bank of Canada to halt further interest-rate hikes, arguing that the brunt of a potential recession will be borne by Canadian workers whose wages are already lagging behind inflation.

A group of top labour leaders recently met with BoC Governor Tiff Macklem to make the case for restraint. The central bank has increased interest rates five times since March, and union leaders are concerned that it is not paying enough attention to the damage that further monetary policy tightening could do to employment.

“It can take a year or more to see the full impact of the bank’s actions and that’s why we recommended to them a wait-and-see approach,” said Mark Hancock, national president of the Canadian Union of Public Employees, who attended the virtual meeting on Sept. 16.

The central bank, however, shows few signs that it is prepared to keep its benchmark rate at the current level of 3.25 per cent. It is widely expected to raise rates again in October, and financial markets expect the policy rate to hit 4 per cent by the end of the year.

The bank’s governing council said earlier this month that “the policy interest rate will need to rise further” – an unequivocal statement that leaves little room to change course in the months ahead. Bank officials believe that the Canadian economy is still overheating, and they have signalled that significant economic pain could be necessary to bring the annual rate of inflation back down to the bank’s 2-per-cent target.

Higher rates are already squeezing housing-market activity and consumer spending, and starting to hit the ultra-tight labour market. Canada lost roughly 114,000 jobs over the summer, bringing the unemployment rate to 5.4 per cent in August from a record low 4.9 per cent in July.

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A growing number of private-sector economists now expect the Canadian economy to fall into recession next year. For the union leaders who attended the meeting, the risk of a sustained economic contraction provides a clear argument for the bank to stop rate hikes immediately.

“Workers have been put through the wringer over the past couple of years,” said Bea Bruske, head of the Canadian Labour Congress, who also was at the meeting. “If the increase in interest rates pushes the unemployment numbers higher, it’s generally the most vulnerable workers, those working in the service-sector types of jobs, who are most likely to be impacted quickly.”

The central bank’s campaign against inflation has put it at odds with unions in recent months. Labour leaders are pushing to ensure that their members’ wages keep up with inflation. Central bankers, by contrast, are trying to engineer a general slowdown in both wage and price growth. Prices and wages can influence each other in a self-reinforcing cycle, as employees try to make up for lost purchasing power by demanding higher compensation and companies try to protect their margins against higher labour costs by raising prices.

Mr. Macklem drew heavy criticism from labour leaders over the summer after he suggested at an event hosted by the Canadian Federation of Independent Business that companies should not build the current level of inflation into wage negotiations.

Central bank officials have since acknowledged that it’s not their place to offer advice on wage negotiations. But they have maintained that getting inflation under control means containing both prices and wages, and persuading people that inflation is coming down.

“The scenario that we’re worried about … is when businesses and consumers start to look at the current rate of inflation, and they make the assumption that that’s here to stay for the long term, and they start making decisions with that assumption embedded,” Carolyn Rogers, the bank’s senior deputy governor, said earlier this month.

“Inflation becomes sort of a self-fulfilling prophecy, wage pressure becomes sort of an independent source of inflation. … Monetary policy has to tighten a lot more to get inflation back down when you’ve got that kind of spiral happening,” she said.

Unions are trying to make the most of the current economic environment, where high inflation, low unemployment and widespread labour shortages are giving them leverage at the bargaining table that they haven’t experienced in decades.

Indeed, a recent Globe and Mail analysis showed that unions across the country have begun to secure higher-than-average wage increases for workers in recent months.

Unionized private-sector workers in Ontario, for example, have seen an average annual wage increase of 4.1 per cent in 2022, according to provincial government data. That figure had not surpassed three per cent in the past decade. And in British Columbia, the BC General Employees’ Union recently clinched a historic double-digit wage hike of 14 per cent (over the course of three years) for 33,000 public-sector workers.

More broadly, the average hourly wage in Canada increased 5.4 per cent in August compared with the previous year.

Still, wage gains by both unionized and non-unionized workers continues to lag inflation, leading to a drop in real wages. That’s adding to widespread affordability concerns, and has spurred calls across political spectrum for a more robust government response.