Wages Starting to Catch Up With Inflation

16-AprilAccording to new data from the Office for National Statistics, wages have caught up with inflation. The increase in average earnings comes after almost six years of low wages relative to CPI inflation.

Consumer Prices Index (CPI) inflation measured 1.6% in March, down from 1.7% in February. The average weekly wage increased by 1.7% during February, exceeding the rate of inflation for the first time since 2010.

The average wage figure used by the Office for National Statistics includes bonuses paid to employees during the month of February. When bonuses are excluded, the average wage growth decreases to 1.4 per cent – slightly below CPI inflation.

More statistics released by the Office for National Statistics reveal the real decline in buying power over the last decade. While wages have increased by upwards of 1.4% per month in the last year, prices have surged over the past six years.

Since July of 2008, the average UK wage has increased 8.6 per cent. In the same time period, prices have risen by 16.9 per cent. Economists have called the gap between wages and prices a “colossal” issue for the UK economy.

Some analysts believe it will take years for wages to catch up with the huge increase in living costs that has occurred since 2008. The Office for Budget Responsibility has claimed that it will take until 2018 for spending power to return to its 2009 level.

The income statistics have also revealed some interesting facts about private sector and public sector compensation. Private sector workers have benefited from 2 per cent annual wage growth, while public sector earn just 0.9% more every year.

Critics of the Office for National Statistics figures have pointed out that, because they exclude the approximately 4 million self-employed workers in the UK, they may not accurately reflect pay conditions for the country as a whole.

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Cost of Living Still Rising at Alarming Rate

February-19Life in the UK continues to grow more expensive. Although inflation recently fell to its lowest rate in four years, figures from the Office for National Statistics show that declining wages are making everyday life difficult for many people to afford.

The Consumer Prices Index (CPI) dropped from the 2% level measured in December to just 1.9 per cent in January, signalling a reasonable drop in the level of inflation in the UK. January was the first month since late 2009 that inflation has been below the 2 per cent target specified by the Bank of England.

Despite this, rising energy prices and falling wages mean that many individuals and families are struggling to afford everyday expenses. Wages are rising at less than 1 per cent every year, putting the squeeze on many low-income families.

Alarmingly, low-income families have been the hardest hit by recent inflation, with the cost of everyday consumer goods increasing. Many low-earners also face large ‘convenience taxes’ in the form of higher relative prices for groceries, energy and transportation.

According to the Office for National Statistics, most UK workers received an average pay rise of just 0.9 per cent over the last year. The Retail Prices Index, a measure of inflation used to gauge the price of important retail items, rose from 2.7 per cent in December of 2013 to 2.8 per cent in January this year.

Economists have called the current combination of declining wage growth and high prices the “longest squeeze on household incomes in 50 years.” Much of the decline in inflation was fuelled by seasonal price changes such as a decrease in entrance fees for museums and other attractions and post-Christmas retail discounts.

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30 Percent of Britons ‘Struggling to Feed Themselves’

september-23-01Rising grocery prices are causing many Britons to forego luxuries in order to keep their grocery bills under control. A new survey from Which? indicates that as many as eight in 10 individuals are concerned about the rising price of food.

The survey also shows that over half of all Britons are concerned about how they can continue to pay for their groceries if food prices increase at their current rate for several years.

Data from the Office for National Statistics largely confirms the concerns of many, showing that the price of food has increased significantly above the rate of general inflation for the last six years.

Food prices have surged ahead of inflation by 12.6 percent, according to the ONS, which has had a major effect on the behaviour of British consumers. Food prices have increased by 3.9 percent in the last year alone, while incomes have increased by just 2.1 percent.

Three quarter of British consumers claim that their income has stayed the same as in previous years, or even deteriorated, during the last twelve months. The surge in food prices now means that three out of 10 people struggle to keep themselves and their families adequately fed.

The rise in food prices has had serious effects on many consumers. Individuals are increasingly turning to payday loans and other high-interest lending options just to make ends meet, with the increasing cost of living spreading many of those on low salaries very thin.

Which? recommends that supermarkets and grocery stores “need to make it easier for consumers to spot the best deal by ensuring pricing is simple.” The group also claims that politicians need to “put consumers at the heart of their economic policies” so that the rising cost of living can be controlled.

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Japanese Consumer Prices Increase, Signalling End of Deflation

august-30-01After five years of deflation, the price of consumer goods in Japan is on the way up after a series of measures from key policymakers bring an end to deflation. Prices for consumer goods in Japan increased by 0.7 percent in the last twelve months.

The news comes after five years of falling or stable prices caused by an overvalued currency and modest economic performance. Inflation, thought of as a major issue in Western economies, is a welcome change for Japan’s stagnating economy.

For years, the East Asian country has struggled with businesses foregoing spending in order to capitalise in falling prices. Large-scale investment by Japanese firms has been minimal due to deflation, which encourages saving instead of spending.

Large-scale economic stagnation in Japan has also kept wages relatively low, making it difficult for Japanese families to repay mortgages and other debts. Many of Japan’s largest companies have struggled for years with slow or non-existent growth.

While the rise in costs primarily affected consumer goods, economists believe that it may have been caused by a large increase in fuel costs. Japan imports almost all fuel, and the collapse of the yen has dramatically increased fuel prices in the country.

Alongside the decline in the value of the yen, the Japanese government has taken a series of steps to encourage inflation and economic growth. These include a large-scale increase to the Japanese money supply aimed at increasing inflation.

Japan is currently experiencing one percent inflation, which the government hopes to double within the next year. The increase in inflation is likely to continue to push the value of the yen down, increasing demand for Japanese exports internationally.

Experts believe that this will help Japanese manufacturers and exporters, many of which have struggled in recent years. However, many claim that the recent growth in living costs is due to the closure of Japan’s power plants following the earthquake and tsunami in 2011.

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UK Wages Declining at the Highest Rate in Europe

august-13-02Wages for UK workers have declined at one of the greatest rates in Europe, a new study from the House of Commons Library shows. Average hourly pay rates have decreased by 5.5 percent in the last three years, making Britain the fourth-worst nation in Europe in terms of total wage decline.

The European Union has experienced a large-scale decline in wages over the past three years that’s affected almost all of the 27 EU nations. Germany was one of the few to escape the decline in wages, with the average hourly wage for Germans on the way up, increasing by 2.7 percent since mid-2010.

EU wages declined by 0.7 percent on the whole, with just three nations – Portugal, Greece and the Netherlands experiencing higher rates of wage decline than the UK. Countries such as Spain and Cyprus have experienced a decline in wages that isn’t quite as severe as UK wage decline, with drops of 3.3 and 3 percent, respectively.

Opponents of the government claim that the figures clearly indicate the increase in living costs that’s become more apparent in the last few years. Cathy Jamieson, the shadow Treasury minister, claims that the wage decline figures prove that ‘despite out-of-touch claims by ministers, life is getting harder for ordinary families.’

High-interest lending figures certainly support her argument, with a growing level of ‘dangerous debt’ amongst formerly solvent families growing into a serious issue for the nation. More British families are struggling with household bills and normal living costs than at any other point in the past decade, many analysts claim.

The government has struck back at its critics, claiming that by implementing its tax-free personal allowance threshold increase and freezing the fuel duty, it’s reduced living costs for a large number of British families. Supporters have also pointed to recent economic growth figures as evidence of an improving economy.

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UK Food and Alcohol Prices Higher Than European Average

june-24-05A survey from the Office of National Statistics is causing heated discussion after it revealed that Britons pay as much as 94 percent more for tobacco products and 43 percent more for Alcohol than most of Europe. The survey looked at top household costs such as food and alcohol and compared them to 27 European countries.

The UK pays, on average, four percent more for food and drinks than the EU27 – a grouped average of all surveyed European countries. Notable expenses for British families include dairy products, which are seven percent more expensive than the European average, and alcohol, which is 43 percent higher than the average.

Despite falling into the top half of the survey, the UK is a far less expensive place to live than most European countries. Norway was ranked first, with food prices over 80 percent higher than the European average and alcoholic products an astounding 170 percent more expensive than the average price across 28 countries.

The UK’s high alcohol prices have been blamed on beer duties – which were recently abolished – and red tape for venues that serve alcoholic beverages. UK residents pay significantly more for alcoholic beverages than the French and Germans, who pay an average of 12 percent and 18 percent less for alcoholic drinks, respectively.

Despite higher-than-average food and alcohol prices, some aspects of life in the UK are less expensive than the European average. Breads and cereals, a major part of our national diet, are 11 percent lower than average, while the cost of meat fell in line with the European average.

Macedonia was ranked as one of Europe’s least expensive countries, with prices for most products falling far below the average. The Netherlands and Spain also scored well on the survey, with both countries offering a high standard of living at below-average prices.

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Federal Reserve QE3 Policies to End in 2014

june-20-02The United States’ economic policy of quantitative easing will come to an end during 2014, Federal Reserve chairman Ben Bernanke claimed. The Federal Reserve’s third quantitative easing effort, named QE3 by American analysts, is still underway, with the fiscal policy unit expanding the country’s money supply to stimulate growth.

Quantitative easing has been one of the United States government’s controversial economic policies implemented to ease the effects of the housing market crash and growing financial stagnation. The policy has involved the government buying large amounts of assets in an effort to improve the country’s economic performance.

With growth rates slowly increasing and unemployment figures indicating a return to the workplace for many formerly out-of-work Americans, the Fed hopes to end its current QE3 program by mid-2014. The announcement that quantitative easing will end in the next year caused several US financial markets to decrease in value.

The Federal Reserve still plans to spend $85 billion per month on asset purchases, as the quantitative easing policy is seen as vital to economic growth. However, the policies will slowly ease during 2014 as unemployment rates decrease and major economic growth brings greater stability to the United States’ job market.

Quantitative easing has been a controversial policy for the Federal Reserve, with a large number of formerly supportive economists growing opposed to the policy as its expansion of the money supply produced side effects. One of the major effects of quantitative easing is an artificially interest rates, which are a reality in the USA.

Bernanke claimed that the Fed will ease its low interest rates as the unemployment rate shows signs of steadying at around 6.5 percent. Federal Reserve spokespeople also noted that the Fed could lower its threshold for increasing interest rates if the economy showed an exceptional rate of recovery.

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Inflation Could Reach 3 Percent in July, Economists Claim

june-18-02The CPI inflation rate rose to 2.7 percent in May after airfares and other transport costs increased substantially. New data from the Office of National Statistics shows that May’s rise in inflation exceeded all economists’ expectations, signalling a long-term increase in the amount that Britons spend on transport and consumer goods.

Bank of England figures have put the target inflation rate at 2 percent until 2016 – a prediction that was seconded by a number of economists. However, extreme growth in the price of airfares caused a record 2.7 percent increase in the consumer pricing index during May 2013, causing alarm for many individuals and families.

The cost of air travel rose by 22 percent to May 2013, with long-haul flights showing a significant increase in pricing. Many analysts were surprised by the significant rise in the cost of air travel, as fuel prices – one of the major predictors of airline prices – decreased substantially between April and May of 2013.

Despite the Bank of England’s two percent target inflation rate, the inflation figures are consistent with BoE predictions. The bank had forecast a 2.9 percent increase in consumer pricing during May. Markit chief economist Chris Williamson claimed that the 2.7 percent figure was below expectations, but still ‘a little bit sticky.’

The high inflation rate indicates a growing decline in spending power for individuals and families alike. Salaries have, for the last few years, failed to keep up with CPI and RPI figures, reducing many families’ spending power. Investec chief economist Philip Shaw claims that the CPI may increase by over three percent in the coming months.

For everyday Britons tired of dealing with rising prices, the drop in spending power is a frustrating reminder of the current economic climate. With slow wage growth, a three percent increase in consumer pricing is, for many families, a serious decline in overall quality of life.

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US Wholesale Commodity Costs Increase Above Predictions

june-15-03A growing number of Americans are concerned about the cost of food, fuel, and a range of other household expenses, new data indicates. New information from the Labor Department of the United States indicates that their concerns are justified, with the cost of everyday household items increasing 0.5 percent in May alone.

The cost of wholesale goods in the United States is tracked using the Producer Price Index – a CPI, of sorts, for the wholesale sector. Estimates from Bloomberg predicted a 0.1 percent increase in wholesale pricing to keep in line with overall inflation. This figure excludes fuel and energy – two commodities that experience price volatility.

Economists claim that the 0.5 percent increase in wholesale pricing has been caused by slowing growth in China, one of the United States’ biggest trade partners. Many of the United States’ commodities originate in China’s manufacturing zones, giving the superpower a wide variety of low-cost goods due to the scale of its imports.

However, a downturn in demand for Chinese products in Europe due to a continued period of economic recession may be to blame for the US’s pricing problems. Fewer Chinese exports are entering the EU, leading many to believe that slower production may be restraining the cost of many commodities.

Despite the rise in wholesale prices, economists believe that the United States is not experiencing a period of large-scale inflation. The increase in wholesale costs came just one month after prices fell by 0.7 percent in April, leading many economists to brand it as a very typical correction of market pricing following the decline.

Certain parts of the American food market were hit harder than others. Fresh eggs, for example, saw a 41 percent price increase. Wholesale fuel costs, however, saw a slight price decrease, easing the stained profit margins of many ailing United States airlines.

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In the words of the BoE governor, Sir Mervyn King, the EU is quite literally “tearing itself apart” and this is having a huge impact on the economy of the UK. Inflation will stay higher longer and it may not be until 2014 that the UK sees itself back to a pre-crisis economy. As a result, the Bank significantly lowered its growth forecast from the previously stated 1.2% to just 0.8% for the year.

Conversely, inflation is expected to stay above the target of 2% at least for the next year which is not good news for households that are already struggling financially. According to Sir Mervyn, the economy will remain slow as well as uncertain and he refers to the current crisis in the eurozone as being a ‘storm’ heading in the direction of the UK.

He goes on to say that the UK has survived the biggest downturn since the 1930’s and that the loss of the eurozone, the UK’s leading trading partner, there will be a huge impact on the economy at home. There is no way to ‘quantify’ what the dissolution of the EU would do to the economy of Great Britain, but it will certainly have a dire consequences.

Although there is no way of telling when this dark ‘cloud’ will move past, again his metaphor, but he has every reason to expect that growth in the UK will indeed recover and that inflation will drop once again. Sir Mervyn then says that Great Britain will be ‘buffeted by winds’ and there is no way to know from which direction they will come, but come they certainly will.

In the end, recovery is made harder because of the uncertainty in the EU, but once the story unfolds, it will be easier to get a grasp on what needs to be done.

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