Canada hasn’t fallen into a wage-price spiral, which would intensify the challenge of taming inflation, says National Bank Financial Inc.

In a new report, NBF examined the risk of elevated inflation driving higher wages, further stoking prices, and making it that much tougher for the Bank of Canada to get inflation back to its 2% target.

“The worry for central bankers, of course, is that high inflation becomes entrenched. Employees demand higher wages to compensate for higher costs of living; businesses raise prices to compensate for higher labour costs and the dreaded wage-price spiral sets in,” it said.

Yet, at this point, this doesn’t seem to be the case, the report said.

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While there have been isolated examples of fast-rising wages — such as a recent deal for British Columbia’s largest public sector union, which will boost pay by between 11.2% and 13.5% over the next three years — this kind of deal still appears to be the exception not the rule.

“Stepping back and looking at the broader picture, it’s clear that higher inflation hadn’t significantly affected Canadian union wage settlements, at least through July (the most recent data),” the report said, noting that the average annual wage increase in the major union wage agreements so far this year remains under 2%.

This relatively modest increase, alongside soaring consumer prices, represents the largest gap between inflation and negotiated pay hikes on record, the report said.

And, the longer that gap remains large, the greater the pressure for higher wages, the report said.

“Workers would surely like to make back some of the real pay cut they’ve taken over the past year,” it said.

The prospect of intensifying wage pressure then, “underscores the importance of quickly returning inflation back to its mandated target,” NBF said, adding that this means that the Bank of Canada may well be willing to entertain weakness in the labour market, if that means that wage pressures ease too.

“For now, the wage-price spiral has been avoided, and we do expect inflation to subside relatively quickly,” it said.

However, any new reports of fast-rising wages will add to the risk of the Bank of Canada straying “further into restrictive” monetary policy territory, the report concluded.