Wage increases give momentum to inflationary spiral By: Editorial Posted: 7:00 PM CST Monday, Nov. 14, 2022 Last Modified: 9:53 AM CST Tuesday, Nov. 15, 2022 Updates

Opinion

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This article was published 13/11/2022 (675 days ago), so information in it may no longer be current.

Investors in the United States were surprised last week by a report on consumer prices that seemed to show inflation had cooled off. They plunged back into buying stocks and bonds in the belief that the Federal Reserve Board, the country’s central bank, would soon start slowing its rapid increases in interest rates.

Last week’s events in Canada, however, painted a different picture. Education support workers in Ontario struck in support of wage demands, defying a newly enacted provincial law that attempted to impose a wage settlement, forbade them to strike and forbade any appeal to the courts to uphold their right to strike.

Taken together, these events suggested that consumer price increases were slowing down in the U.S. but Canadian workers were insisting on wage increases to keep them abreast of inflation. Widespread wage increases would compel some employers to raise their prices, thereby giving new impetus to the inflationary spiral.

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The regular consumer price report from the U.S. Bureau of Labor Statistics showed that prices for a large basket of consumer goods had risen by 7.7 per cent from October last year to October this year. That was the lowest rate of year-over-year increase since the period ending in January this year and it followed successive drops in the annual rate in July, August and September. The June increase of nine per cent started to look like a peak that was long passed.

Federal Reserve chairman Jerome Powell has repeatedly said the central bank must be firm and resolute in raising interest rates to bring down inflation. Investors, however, reasoned that the bank would have to acknowledge the evident easing of upward price pressure.

Education support workers in Ontario, meanwhile, were not impressed when Premier Doug Ford came down hard on their contract demands by enacting a bill to impose a contract on them. Far from quietly complying, the education assistants and school janitors represented by the Canadian Union of Public Employees went on strike, closed schools and won widespread support from other unions and from the Ontario public.

Premier Ford backed off and asked the union to resume the bargaining his bill had interrupted.

In persisting with the threatened strike, CUPE and its members were risking heavy financial penalties contained in Premier Ford’s bill. It was clear, however, that other unions were going to help CUPE pay any fines that might be imposed. The Ontario government was not just taking on education support workers; it was picking a fight with the Canadian labour movement, including the auto workers whose industry forms the backbone of the Ontario economy.

This is the dynamic economists and central bankers have been fearing. Workers have been watching inflation eat into their buying power for more than a year now and they are anxious for wage increases. Their defiance of Premier Ford’s no-strike law showed a high degree of determination to win higher pay. Some employers will have to raise the prices of their goods and services in order to cover the pay increases their workers need — and there goes another spin of the wage-price spiral.

Workers in the U.S., like those in Canada, are well aware that employers have been unable to find and hire the workers they need at the wage rates that used to prevail. Workers these days can afford to be choosey. As things stood last week, Wall Street thought it discerned the imminent end of the current wave of inflation. Main Street had not noticed the difference.