No good news on inflation as unions threaten mass strikes

Well, inflation hasn't got any worse. But 4.5% at a time of job cuts and pay freezes is still pretty painful.

by James Taylor
Last Updated: 19 Aug 2013
The Consumer Price Index measure of inflation held steady at 4.5% in May, the Office for National Statistics said today, with the relentless rise of fuel and food prices offsetting falls elsewhere. OK, so it could have been worse - but since this is likely to be a temporary pause rather than a change in direction, and since CPI is already running at more than double the Bank of England's target, that will seem like scant consolation to people whose take-home pay continues to fall. Public sector workers are, inevitably, suffering the biggest squeeze at the moment - which is why the unions are now talking about some 2m people walking out on strike in the coming months...

On the plus side, UK inflation is running below that of India or China (9% and 5.5% respectively). And today's CPI figure was in line with City forecasts (as was Retail Prices Index, for that matter, which stayed at 5.2%). But it's still a long way above the Bank's 2% target - and the consensus is that rising fuel costs will push CPI above the 5% mark at some point in the coming months. So the freshly-knighted Sir Mervyn King will clearly be writing those letters to George Osborne for a long time to come.

Fuel costs are already having an impact on the index, of course (and on retail spending, if you believe Tesco today). They were up 1.3% from the previous month, or a whopping 13.7% year-on-year. The price of booze and fags also pushed the index up, rising nearly 10% in the last year (boo). However, transport costs were right down, which ensured the index remained steady - though that was largely due to the end of Easter peak fares, as opposed to anything more fundamental.

What pleases the Bank is that this long period of above-target inflation (and its impact on people's future inflation expectations) doesn't seem to be feeding through to wage settlements. This would be problematic because it could lead to the infamous wage-price spiral.

But the flipside of this is that if people get any sort of pay rise, it'll probably be below the level of inflation - which effectively means their pay is going down. That's particularly true in the public sector, where wages have basically been frozen (along with all those redundancies). So it's no wonder that the unions are feeling sufficiently emboldened to call for mass strikes: Unison boss Dave Prentice told the Times yesterday that his 1.2m members were 'on the road to industrial action', and promised to hold the 'biggest ballot ever held in this country'. With up to 750,000 PCS members already planning a walk-out on June 30m, and Unite threatening to following suit, this has all the hallmarks of a summer of industrial discontent...

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