Could union wage hikes worsen inflation?

It may be cold out, but bankers up north are sweating thanks to a flurry of union settlements that could, according to a new report from Toronto-Dominion Bank, have “staying power.”

For years, unionized workers’ pay failed to keep pace with inflation, but now labor negotiators are pressing to close the gap. The successful UAW strike in the United States led to 11% wage increases, and Canadian union settlements, though not as high, are rising as workers try to make up for ground lost to inflation.

This is not expected to slow the struggle against inflation in the United States because only 10% of the US workforce belongs to unions. But in Canada, where about 30% of the workforce is unionized, juicy settlements have a bigger economic impact.

While the deals should not be enough to cause inflation, they may make it harder to tame, and this could mean more trouble for Justin Trudeau’s embattled government if Canadian voters see inflation falling in the United States more quickly than in Canada.

Plus, Canadian homeowners are angry about the looming mortgage shock that will see many of them renew at higher rates. Finance Minister Chrystia Freeland just introduced the Canada Mortgage Charter, a set of voluntary guidelines to protect homeowners under financial pressure, that she expects banks to follow. But more than three million Canadians are facing mortgage renewals in the next 18 months, which means higher payments for most – as well as foreclosures for some.