The November inflation figures have just been published by the Office for National Statistics (ONS). CPI is now running at 10.7% with RPI also down slightly at 14%.
All the forecasts have been suggesting that it will level off at the end of the year, but almost every single projection that I’ve seen in the past couple of years has underestimated the rises to come and forecast falls when we ended up getting raises, so this comes as a welcome relief, however small.
As the Resolution Foundation puts it, this will be a relief for policy-makers but still very challenging – particularly for low-income households.
Sharpest fall in inflation in 16 months will be of more comfort to policy makers than families, says @jackhleslie , in response to the latest @ONS inflation data https://t.co/C5xd04eAaQ pic.twitter.com/IuCaGMZoZL
— Resolution Foundation (@resfoundation) December 14, 2022
The previous inflation figures released on 16 November 2022 reported that Retail Price Index (RPI) rose by 14.2% in the 12 months to October 2022, and up from 12.6% in September. The Consumer Prices Index (CPI) rose by 11.1% in the 12 months to October 2022, up from 10.1% in September.
As we have become used to saying now, these are the highest rates since the 1980-1 spike when rates hit a high of 21.8% (RPI).
As Joel Pearce has outlined in the Prospect Nov/Dec pay bulletin, the rises are…
“…principally driven by domestic energy costs. This follows the government’s Energy Price Guarantee, which increased the cap on energy prices from 1st October, leaving an average household with typical usage paying £2,500 a year for their energy bills – a 27% increase on Ofgem’s previous price cap.
Despite this, the ONS estimates that electricity, gas, and other fuel prices would have risen three times faster between September and October without the Energy Price Guarantee. This would have pushed CPI 2.7 percentage points higher to 13.8%.”
Because wage rises are not coming anywhere close to these figures, this is all translating into a very significant drop in real wages. The TUC’s figures are showing real wages falling by an average of £76 a month over the last year, and for key workers in the public sector, it was £180. On a micro level, the TUC has looked at what this means for the family Christmas plans.
Readers may also want to recall the thing that I’ve been banging on about to anyone who will listen (I’ve mentioned it in at least one previous post here) is that there is (for workers) a very pernicious sequence of events that means that they not only need large consolidated pay rises to keep pace with inflation, but large unconsolidated payments to cover what they have lost, because…
- August 2021 – inflation forecasts of modest increases by April 2022
- August 2021 – unions negotiate RPI or CPI increases based on modest inflation increases – to come into effect in April 2022
- August-September 2021 – April 2022 – inflation rockets well ahead of forecasts
- By April 2022 those pay settlements are well short of inflation so throughout 2022-3 workers have taken a cost-of-living hit – in every pay monthly packet
- April 2022-April 2023 – inflation continues to rocket – wages don’t (waiting for the next pay-round)
- August-September 2022 – new round of pay talk – employers reluctant to agree to the 10-12% that they need to keep pace with inflation because < reasons > (according to Joel Pearce, XpertHR are saying that the median anticipated pay award in 2023 is 5%, with employers anticipating settlements ranging from pay freezes at the lower end to a 15% pay rise at the highest end)
- April 2023 – lower-than inflation increases + the 2022-3 losses continue to hit each pay packet
I did one calculation for members a few months ago that worked out that, for wages to keep pace with RPI and for them to not lose all of the gains that have been achieved in previous years by recording above-inflation pay increases, members will need an increase of at least 15.9% (or 16.9% if the usual “RPI + 1” stance were preferred) along with an unconsolidated increase of 9.92% lasting for one year.