Inflation might be falling, but people need above inflation pay rises now

Posted on May 24 2023

As expected, the Office for National Statistics has released to data today showing that inflation fell significantly in April. The key data is:

  • The Consumer Prices Index (CPI) rose by 8.7% in the 12 months to April 2023, down from 10.1% in March; on a monthly basis, CPI rose by 1.2% in April 2023, compared with a rise of 2.5% in April 2022.
  • Electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April as last April's rise dropped out of the annual comparison, but this component still contributed 1.01 percentage points to annual inflation. 
  • Food and non-alcoholic beverage prices continued to rise in April and contributed to high annual inflation, however, the annual inflation rate of food and non-alcoholic beverages eased, from 19.2% in the year to March 2023, to 19.1% in the year to April 2023.

As Danny Blanchflower and I pointed out some considerable time ago, falling inflation from April onwards was inevitable. The impact of the onset of war in Ukraine was always going to fall out of the index after twelve months. The value of the index was as a matter of simple  mathematical inevitability going to decline. Despite the horrendous, and hard to explain (excluding Brexit) food price inflation that will remain the case for the rest of the  year.

There are four things to note though. The first is that falling inflation does not mean prices are falling. It means that they are not going up so fast. So, there is still an inflation issue.

Second, action to tackle the cause of that continuing inflation, which is unjustified price increases, remains essential.

Third, the excuses for high interest rates has now gone, if they ever existed. These need to fall now as a matter of urgency.

And most importantly, fourthly, working people have not made good their lossses from inflation although record dividends from big business make clear that they have. Above inflation pay rises are now needed  to correct for this. Nothing less will do unless there is going to be a significant and permanent increase in inequality and poverty in the UK.

The Bank of England, government and, no doubt Labour, will fight these pay rises. They will be wrong to do so. Everyone of them will be engaging in class warfare if that is their position. The consequences, most especially for Labour since they want to form the next government, might be ugly. Many people are at breaking point. Falling inflation cannot be the excuse to finally break their ability to survive financially.

 

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4 Responses

  1. John Griffin says:
    May 24 2023 at 10:35 am

    What I find weird or malign is that Labour nationally, and in my locality, either put their fingers in their ears when questioned about inflation, wages etc, or attempt the ‘Tory enabler’ excuse. It’s not really that hard to understand that greed is driving continuing price rises, or that our political system is broken in its failure to ‘do the best’ for citizens.
    I have never known friends who are politically and economically aware be so depressed by ‘our current troubles’, and the refusal to contemplate issues via the ‘grown up politics’ of a pure community focus (pushed by Labour HQ) is beyond belief.

  2. John Boxall says:
    May 24 2023 at 11:33 am

    I know its a point I have made before, BUT if Government was to set a target both for the percentage of GDP that went to earnings AND how it was distributed then it would not be ‘Inflation Busting’ pay increases it could be shown as just handing out a fair slice of the cake.

    Secondly I suggest that it might set up some interesting tensions as if top pay/returns on capital rise employers would know that their pay bills would start to rise.

  3. Dr Tim Rideout says:
    May 24 2023 at 12:09 pm

    I like John Boxall’s idea. My wife is currently on strike as a member of the UCU University union where the employers are refusing any serious negotiation on a pay rise for academics. Her salary as a lecturer has indisputably declined in real terms for the last decade, and the employers have cut the pensions by around a third (despite the USS being probably the best funded pension scheme in the UK). Yet we discovered this week that the Principal of Edinburgh University has been awarded (by who?) a £43,000 pay rise, taking him to £406,000 pa salary (plus benefits). That is a little over 10% for him, but the rest of the staff? Nothing as yet …

    Personally I doubt being Principal is twice as difficult as being Prime Minister, or three times more so than being First Minister, but that is just me being cynical! (maybe)