As the bear on this issue’s cover suggests, it’s been a pretty tough week for investors, who have grown unaccustomed to even relatively minor corrections. However, employees might be feeling rather more cheerful. According to the Office for National Statistics, in the three months to August, annual wage inflation in the UK (excluding bonuses) rose to a near-ten-year high of 3.1%. In real terms (adjusted for inflation), it’s still a little below the old-school retail price inflation measure of 3.3%, but it’s well above the latest consumer price index figure of 2.4%. And it only looks set to rise further – on both sides of the Atlantic.
Earlier this month, Amazon raised its minimum wage for both British and American workers, and said that it plans to lobby the US government for a higher federal minimum wage. Now the US’s largest trucking company – J.B. Hunt Transport Services – says that in the past 12 to 18 months, it has lifted wages by around 10% due to an industry-wide shortage of drivers.
It’s been so long since we’ve seen sustained wage inflation that most people still can’t quite wrap their heads around the idea. And it’s only just starting to make itself felt in the official data. But this is worth paying attention to. As I outline in this week’s cover story, the recent turbulence we’ve seen in the US and global markets has been driven primarily by nerves over rising interest rates. Rising rates, in turn, are being driven to a great extent by markets starting to wake up to the fact that we’re no longer at imminent risk of plunging into deflation.
Why are big, forward-thinking, employers such as Amazon and J.B. Hunt paying people more? For the same reason that you pay more for any other service or product – because you have to. Unemployment in both Britain and America (and Japan, for that matter) is now at multi-decade lows. For several years after the 2008 crash, most people were grateful just to have a job. Now they can pick and choose.
As a result, if you want to recruit the best staff – and you want to hang onto the staff you’ve got – you have to offer them more. As retail consultant Gerald Storch told CNBC, Amazon has put its rivals on the spot. “I cannot believe that others aren’t going to follow suit very rapidly. If you don’t, you have a demotivated workforce. So the retailers who can afford to are absolutely going to get there a lot faster than they were going to.”
This is good news. We’ve been pointing out for years now that one big driver behind today’s political upheaval is the fact that while asset prices have soared, pay packets have not. Capital has won out, while labour has seen its fortunes stagnate. That needed to change and it is. However, it means that those on the other side of that equation – investors among them – need to be prepared for more turmoil. See our cover story for our take on how to adapt.