Inflation and Earnings

Squeeze on households’ pay shows signs of abating in 2018.

 

Data published by the Office for National Statistics (ONS) highlighted improved earnings growth in its latest labour market report, while a softer increase in living costs added to signs that the squeeze on real wages may be coming to an end.

 

Total pay (including bonuses) rose by +2.8% on an annual basis in the three months to January, which was the strongest increase seen for over two years. At the same time, regular pay (which excludes bonuses) increased by +2.6% over the same period, to mark the strongest growth for over a year.

 

Concurrently, additional ONS data have shown tentative signs that living costs are rising at a softer pace. Based on the Consumer Price Index, average living costs increased by +2.7% on an annual basis in February, down from +3.0% in January, and the slowest inflation seen since last July. The dip in the index was largely linked to falling petrol prices and slower rises in food costs.

 

Encouragingly, the official data add to signs that the gap between growth in pay and living costs has shrunk. With many economists expecting inflationary pressures to subside further, this could translate into the first increase in real pay for over a year.