Wage increases accelerate inflationary spiral – Winnipeg Free Press


Investors in the United States were surprised last week by a consumer price report that appeared to show that inflation had subsided. They plunged back into buying stocks and bonds on the belief that the Federal Reserve, the nation’s central bank, would soon begin to slow its rapid interest rate increases.

The events of the past week in Canada, however, painted a different picture. Education support workers in Ontario went on strike in support of wage demands, defying a newly enacted provincial law that attempted to impose a wage settlement, prohibited them from striking and barred any recourse to the courts to enforce their right to strike.

Taken together, these events suggested that consumer price increases were slowing in the United States, but Canadian workers were insisting on wage increases to keep abreast of inflation. Widespread wage increases would force some employers to raise prices, thus giving a new impetus to the inflationary spiral.

The regular report on consumer prices from the United States Bureau of Labor Statistics showed that the prices of a wide basket of consumer goods increased by 7.7% between October last year and October this year. This is the lowest year-on-year rate of increase since the period ending in January this year and follows successive declines in the annual rate in July, August and September. June’s 9% increase has started to look like a long-exceeded high.

Federal Reserve Chairman Jerome Powell has repeatedly said that the central bank must be firm and determined to raise interest rates to bring down inflation. Investors, however, felt that the bank should acknowledge the evident easing of upward pressure on prices.

Ontario’s education support workers, meanwhile, were unimpressed when Premier Doug Ford harshly criticized their contract demands by passing a bill to force them into a contract. Far from quietly complying, teacher aides and school custodians represented by the Canadian Union of Public Employees went on strike, closed schools and won broad support from other unions and Ontarians.


Doug Ford, Premier of Ontario

Premier Ford backed down and asked the union to resume negotiations that his bill had interrupted.

By persisting in the strike threat, CUPE and its members risked the heavy financial penalties contained in Premier Ford’s bill. It was clear, however, that other unions would help CUPE pay any fines that might be imposed. The Ontario government was not just recruiting education support workers; he sought to do battle with the Canadian labor movement, including autoworkers whose industry forms the backbone of Ontario’s economy.

This is what dynamic economists and central bankers feared. Workers have seen inflation eat away at their purchasing power for over a year now and they are eager for wage increases. Their defiance of Premier Ford’s strike ban law showed a high degree of determination to earn a higher salary. Some employers will have to raise the prices of their goods and services in order to cover the wage increases their workers need – and there is another round of the wage-price spiral.

Workers in the United States, like those in Canada, are well aware that employers have been unable to find and hire the workers they need at previously prevailing wage rates. Today’s workers can afford to be selective. As things stood last week, Wall Street thought it discerned an imminent end to the current wave of inflation. Main Street hadn’t noticed the difference.

Christy J. Olson