ONS: After six years, wage rises match inflation

 
crowd of people Wages are rising faster than inflation for the first time in six years

After nearly six years of falling real wages, rises in weekly earnings have finally caught up with inflation.

Weekly wages, including bonuses, rose by 1.7% in the year to February, up from 1.4% in January, according to the Office for National Statistics (ONS).

Consumer Prices Index (CPI) inflation stood at 1.7% in February and fell to 1.6% in March.

It is the first time that earnings have matched inflation for six years, apart from two months in 2010.

Chart showing how rising wages have caught up with falling inflation for the first time in recent years

Analysis

Earnings move above cost-of-living increases. That headline will dominate much of the debate around these labour market figures.

The inflation rate of 1.6% covers the year to March, while the 1.7% rise in average earnings including bonuses is the annual rate recorded between December and February. But the broad trend is clear.

The squeeze on workers' living standards which has persisted more or less continuously since 2008 is technically over.

That being said, on one estimate, real wages have declined 10% over that period and it may be a while before the lost ground is clawed back.

The drop in the unemployment rate to 6.9% is noteworthy, though less important to the Bank of England since it amended its forward guidance policy on interest rates.

It is worth noting that of the 239,000 increase in those in work over the quarter, 146,000 was self-employment. The debate over how many of the self-employed are there only because they have lost jobs elsewhere will continue.

However, when bonus payments are excluded from the figures, wages rose by 1.4%, still below the rate of inflation.

The latest figures for wages measure the three months to February. At that time CPI was at 1.7%.

Other statistics from the ONS show how inflation has eroded the value of pay over the last six years.

While earnings rose by 8.6% since July 2008, prices rose by 16.9%.

Public sector

Although the figures suggest that people's purchasing power is now improving, it will be several years yet before real wages are back to the level they were before the financial crisis.

The Office for Budget Responsibility (OBR) has estimated that real incomes will not return to their 2009-10 levels until 2018 at the earliest.

And since the start of the financial crisis, real pay has fallen by a "colossal" 10%, according to Capital Economics.

That is said to be the biggest fall in any five-year period since the 1920s.

However, the government has said that all but the top 10% of earners are already seeing their incomes rise, once tax cuts are taken into consideration.

David Freeman from the Office for National Statistics says average pay rises are outstripping the rate of inflation for the first time in four years

The latest figures for average wage rises also conceal a marked divide between workers in the public and private sectors.

Those in the private sector are now enjoying average annual rises of 2%, including bonuses.

By contrast, those in the public sector are only seeing rises of 0.9%.

The figures also exclude the estimated 4m workers - around 15% of the total- in the UK who are self-employed.

According to the Resolution Foundation, such workers are more likely to be involved in "low paid odd-jobbing" rather than highly-paid entrepreneurial jobs.

In other words, the ONS figures may well over-estimate the actual level of pay rises.

 

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  • rate this
    +31

    Comment number 883.

    If you believe this you'll believe elephants can fly!

  • rate this
    +32

    Comment number 862.

    Real inflation is much higher than the figure they claim when you factor in things like the housing bubble, the increases in utilities etc it is much higher for many people than the CPI they claim. Also I rarely get a pay rise I get one every 2 or 3 years so how can my wages be catching up with inflation?

  • rate this
    +12

    Comment number 853.

    i have read this headline on various news forums what a lot of rubbish we all know that everthing you can mention has gone up in price over and over again except one thing income from salary or savings investment.the great thing about the interent is forums like this and as we all know knowledge is power!

  • rate this
    +143

    Comment number 140.

    Haven't had a pay rise in years. Don't know anyone who has. An average figure includes and is skewed by the people at the top, raking it in.

  • rate this
    +78

    Comment number 91.

    Averages can be misleading especially when there is a bottom limit but no top limit.In 2013 executive pay rose by 14% and these payments are far higher than most people earn. So a small number of huge pay rises balance off lots of people receiving small pay rises. This fits with what most people know - most of us still have falling real incomes. But those at the top are getting huge increases.

 

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