Is the earnings squeeze over?

The cost of living crisis is at an end, it seems. The latest British economic data shows the annual inflation rate (as measured by the consumer prices index) falling to 1.6% – due to stable petrol prices and cheaper clothing and household goods.

With producer prices growing even more slowly, said Capital Economics, “price pressures in the inflation pipeline are still extremely weak”. Critically, inflation is now below the annual growth in average wages. This means that “the six-year squeeze on real earnings is finally over”.

As well as rising real wages, the jobs market is also in rude health, noted the Financial Times. “The jobless rate fell to 6.9% of the workforce,” the lowest since February 2009. Employment rose to a record 30.39 million. The only fly in the ointment is that “almost two-thirds of the increase was in those who were self-employed, up to a record 4.5 million”.

What the commentators said

It’s “good news” that inflation is “losing its ability to pick our pockets”, said Allister Heath in City AM. But “inflationary pressures now focus on asset markets” – especially London housing.

This, and the “continuing strong growth and declining spare capacity”, suggests that “monetary policy should be tightened, regardless of what is happening to the consumer price index”.

Well, real wages may be rising a bit, said Larry Elliott in The Guardian – but “don’t spend it all at once”. As he pointed out, “inflation as measured by the now unfashionable retail prices index (RPI), for example, is running at 2.5%, which would mean real wages were still falling”.

In any case, wage growth “is unlikely to match that of the early 2000s, a period when the economy had been growing strongly for a decade”. Overall, “it will take several years to recoup the 10% drop in real wages since 2008”.

Merryn

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