Bargaining with Inflation

Categories: Bargaining, Bargaining Updates 2022, Inflation

As anyone who has read the headlines, or gone to the grocery store, or filled their car knows, inflation has recently surged to levels unseen in Canada in over thirty years. And it’s not going to get better in a hurry.

Beginning in 1991, the Bank of Canada adopted an inflation control target that aimed to keep CPI inflation between 1 and 3 percent, with a target midpoint of 2 percent. Figure 1 plots the annual (March-to-March) Canadian all-item Consumer Price Index changes. 

Figure 1. Annual Inflation: Canada

Source: Statistics Canada. Table 18-10-0004-01 Consumer Price Index, monthly, not seasonally adjusted.

As Figure 1 demonstrates, the inflation control target policy had been very successful. With the exception of only a few transitory exceptions inflation had indeed remained within the control target range. Until now. The unanticipated spike in inflation we are experiencing now is well above the target range, above the Bank of Canada’s forecast, and clearly is not transitory. The Bank of Canada, having recognized this, has started a process of quantitative tightening, raising the policy interest rate to 0.5 per cent in April. It is almost certain that the policy rate will be raised several more times in the coming year. 

This is a slow process. According to the Bank, policy rate changes typically take six to eight quarters to achieve its objective, but we are in an inflationary period that is not typical, and we may be entering uncharted waters. In short, we may be experiencing inflation above the top of the Bank’s target range (i.e., above 3%) for the entire duration of our next Collective Agreement.

Figure 2. Recent Inflation, Canada, BC, Vancouver

Source: Statistics Canada. Table 18-10-0004-01 Consumer Price Index, monthly, not seasonally adjusted.

When inflation outpaces general wage increases members suffer a loss in real income. We don’t have to wait for July to see that happen. It has already happened. Figure 2 presents the month-to-month inflation from March 2019 to March 2022 for Canada, BC, Vancouver (no data is available for Kelowna). After a period of slightly above 2% followed by a short COVID induced period below 2%, inflation has soared. Between March 2019 and March 2022 the Consumer Price Index for Canada rose by 10%, for BC it rose by 9.4% and for Vancouver it rose by 9%. Over the same three years our compounded general wage increase was 6.1%. We have already suffered a cut in real salary and it will only get worse unless we get meaningful inflation protection in this round of bargaining. 

It is important to understand that when inflation returns to fluctuating narrowly around the 2% target things will not return to “normal”. The higher prices that we now see, and will continue to see, during this higher than normal inflationary period, will not return to the levels they were before. They will be permanently higher and any loss in real income suffered during this inflationary period will be permanent. It is all the more important, then, to address the problem in this round.