Towards the end of last year, economic forecasters could safely have been described as ‘alarmed’ by inflation figures. I don’t post on this every month (the last real mention was here) and I was briefing members towards the end of the year that inflationary figures were bad, and made worse by the fact that they were going sharply ahead of economists’ predictions.
Earlier in 2021, Bank of England anticipated that CPI inflation would start to rise sharply towards 2% through the spring and remain there for the next couple of years. Those estimates were, it seems, wildly optimistic – driven particularly by rising energy and transport prices, renewed economic growth, inflationary skills shortages and supply chain and wage-increase driven cost increases.
The October figures urged us to brief Bectu branches about how UK cost of living increases would result in a detrimental impact on living standards. The November stats from ONS told us that RPI in October 2021 was 6% (up from 4.9% in September), and that CPI was 4.2%.
Unfortunately, the December figures are even worse – not only worse than preceding months but worse than official predictions.
Yesterday, it was reported that, in December 2021, CPI was 5.4% – the highest rate in 30+ years (again, ahead of forecasts to rise from 5.1% to 5.2% Nov-Dec) and RPI was 7.5% – also highest rate in 30+ years. Unions generally advise members to look for RPI increases as they most closely reflect the real costs facing workers in mainstream salary bands.
Food-price inflation was 4.9% and the headline figures were particularly significant rises in Transport, Housing & Energy costs.
Of course, this raises the new spectre of further damage being done to disposable income because the standard way of reigning in inflation is usually to tighten the money supply to cut spending – and this is done by raising interest rates. The Bank of England is under pressure now to do exactly that.
As the FT [£] reports….
“Most economists expect the inflation rate to increase to at least 6.5 per cent if the government takes no action to stem energy price rises in April, but is likely to hit 6 per cent even if Sunak acts to limit the rise in bills.”
As anyone who listens to the news will tell you, this isn’t all bad news because labour shortages are resulting in wage increases which are offsetting a lot of this damage. Except it isn’t doing anything of the kind. The reality is, as the FT [£] is reporting, that ONS figures show that inflationary is outpacing wage growth and we are seeing falls in real pay.
As I said in December, commenting on PIRCs study of labour market trends, employers are not generally doing as much as they could to retain talent, nor are they offering significantly higher wage incentives to attract it.