Low inflation? Think again...

Low inflation? Think again...- at Moneyweek.co.uk - the best of the week's international financial media.

BT Group, the telecoms giant, is facing wage demands from its employees' union that could add more than £300m to its payroll costs, says Andrew Murray-Watson in The Sunday Telegraph. "The Communications Workers Union (CWU) is demanding that BT, which has over 100,000 staff, grant its workers an inflation-busting 8% pay rise." Reports from BBC Radio 4 suggested the offer from management is only around 2%. About 70,000 of BT's staff, according to Murray-Watson, out of 86,000 in the UK, are CWU members. In a statement, the CWU said the claim was "realistic". Why? Because, says the union, BT can afford it. BT's profits were £1.09bn for the last interim period and the union argues that the firm's board and shareholders have already enjoyed significant payouts over the past year. The union feels it's time the workforce shared in the profit recovery.

This is absolutely textbook late-cycle inflationary pressure and exactly the sort of thing that Mervyn King, governor of the Bank of England, has identified as one of the biggest threats to the Bank's ability to keep to its inflation target. Wage cost-push inflation occurs when workers demand higher wages, which push up companies' costs, eventually forcing them to hike their prices. Higher prices raise the cost of living and cause the unions to demand higher wage settlements again and again. A classic inflationary spiral ensues.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.