Surge in inflation comes at worst possible time for pay bargaining, says CIPD

Figures published on 16 February, by the Office for National Statistics (ONS), show that the annual rate of inflation as measured by the headline Retail Prices Index (RPI) rose sharply to 3.7% in January, up from 2.4% in December. John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD), says that while most attention will be on the Consumer Prices Index (CPI) – which is now running at 3.5%, well above the 2% rate the Bank of England is required to target – workplaces will be more affected by the surge in RPI, which at least 8 in 10 employers use as the key cost of living benchmark when determining pay settlements.

Dr Philpott comments:

“With the late winter and early spring still an important period for pay bargaining, the surge in RPI inflation has come at the worst possible time. There is a risk that higher inflation will trigger bigger wage rises than the UK’s ailing economy can currently afford, even though the rise in both CPI and RPI inflation is a temporary spike that will almost certainly be followed by an equally sharp fall later in the year. While it may not be comforting news for already hard pressed workers facing a rise in their cost of living, real wages will have to be squeezed if jobs are to be preserved and any further rise in unemployment minimised.”

Commenting on the inflation figures, TUC General Secretary Brendan Barber said:

‘The inflation message is don’t panic. The rise today has more to do with what was happening a year ago than anything new in the economy, and is likely to fall back to its target range in due course. The real threat remains a double-dip recession, and boosting jobs and growth remain the most important priorities.’