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Employers, What Should Your COLA be in 2023?

With a challenging labour market, rising costs and little certainty about the economy’s direction, Canadian employers may be more uncertain about correctly calculating their cost of living adjustment should be for 2023.

Employers, especially small to mid-size organizations that don’t have a squad of economists to ask wage-related questions, can often find guidance in what the Canadian pension funds are recommending.

In our province, the Alberta Teachers Retirement Fund uses the difference in year-over-year prices for the Alberta Consumer Price Index (ACPI). The ACPI, which is specific to Alberta, tracks the price changes on a fixed basket of goods, which includes:

  • Shelter
  • Transportation
  • Food
  • Recreation, Education & Reading
  • Household Operations, Furnishings & Equipment
  • Clothing & Footwear
  • Health & Personal Care
  • Alcoholic Beverages & Tobacco

The ACPI index has risen 6.20% in the 12 months ending October 2022 compared to the previous term.

For comparison, here are some recent yearly ACPI differences:

Source: ATRF

By comparison, several large pension funds use the Canadian Consumer Price Index, which tracks the broader Canadian market. The CPI rose in Canada by 6.8%, as it did in Alberta, during the same 12-month period.

Here is how Alberta stacks up against the rest of the country using CPI:

For our American friends, in October, the Social Security Administration announced that retirees under their plan would receive an 8.7% COLA in 2023. This is the single largest increase in adjustments in 40 years.

Pension funds are tasked with safeguarding and protecting their plan holders’ investment and can be usually counted on to take a conservative approach to this task. When considering their COLA for 2023, Employers can use the above information as one of the reference benchmarks in their calculation.

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