Is the earnings squeeze over?

The rate of inflation has now fallen below the annual growth in average wages.

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

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".

Recommended

Greensill, Cameron and the return of Tory sleaze
UK Economy

Greensill, Cameron and the return of Tory sleaze

The collapse of Greensill Capital threw a spotlight on political lobbying when it emerged that former PM David Cameron had been fighting its corner. J…
17 Apr 2021
Recovery Loan Scheme: the latest government aid package for small businesses
Small business

Recovery Loan Scheme: the latest government aid package for small businesses

The Recovery Loan Scheme will help companies weather the pandemic
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021