Huw Pill, chief economist for the Bank of England, says asking for pay rises contributes to inflation.
Graham Watson's insight:
I 'love' reading articles like this where extraordinarily well-off individuals lecture everyone else on how they can behave. In this case, the Chief Economist of the Bank of England and former chief European economist for Goldman Sachs effectively tells workers that they shouldn't be expecting pay to keep pace with inflation.
It shows a remarkable degree of self-regard and lack of empathy.
Chief economist says risks remain despite fall in wholesale energy prices and UK on brink of recession
Graham Watson's insight:
I'm intrigued that the Chief Economist of the Bank of England has come out and suggested that inflation could be more persistent than has been touted, arguing that the fall in energy prices notwithstanding, there are headwinds that may keep it higher than forecast, not least wage pressures.
However, in adopting this position, I worry that this point of view is rather cosy from the government's perspective, and supports their position that any pay increases could help sustain inflation. Does this imperil the Bank of England's independence?
The government says it wants to tame public sector pay to fend off a highly unlikely wage-price spiral
Graham Watson's insight:
Richard Partington states it in no uncertain terms: UK inflation is a function of higher energy prices, and the impact of rising wages on inflation has been minimal.
As a result, he condemns the attempts of the government to create a narrative about the possibility of a wage-price spiral driven by higher wages, not least in the public sector.
For me, the most interesting data relates to the number of days lost to industrial action - look closely. The government are going to claim that the country is being held to ransom by striking railway workers and postal workers, and announce new legislation to curtail their right to strike. But the evidence - and objective evidence - suggests that, overall, there's little in the way of need for this.
While Boris Johnson plays politics, Britain’s public sector is fraying at the seams
Graham Watson's insight:
An article with lots of content that underlies it - the cost of living crisis, the functioning of labour markets, the provision of public services. However, there's no obvious theoretical core to this, other than to suggest that there's a possibility that high pay settlements 'might' fuel a wage-price spiral, but that this seems unlikely, and to suggest that public sector pay, by it's very nature, rarely seems to keep pace with either inflation or private sector pay.
Opponents say this will lead to a wage-price spiral – but that’s an argument that’s stuck in the 1970s, says Labour MP Nadia Whittome
Graham Watson's insight:
Despite this article featuring lots relating to a minimum wage, I've put this Guardian article here because it's real focus is the cost of living crisis.
In it, Nadia Whittome, a Labour MP, argues for a £15 minimum wage suggesting that critics who see it as fuelling a wage-price spiral are wrong-headed. She argues that not only can firms afford it, but it will save the Treasury money in reducing benefit payments, and would simply see a redistribution of profits away from executive pay and in favour of the pay of ordinary workers. Superficially, it has appeal but you'd worry about how increasing the minimum wage would trigger further pay increases in other areas, and unfortunately, I also don't see executive pay coming down any time soon.
Inflation is set to jump to 9% this week when official figures are released, and fears of a slump are growing
Graham Watson's insight:
It's back to the future for the UK economy, with the announcement of official inflation figures this week. Inflation's set to reach 9%, a figure last seen in 1990. Equally, labour market data might also suggest worrying levels of wage growth and the possibility of a wage-price spiral.
Given that the economy shrank by 0.1% in March, it seems as though we might be on the brink of a recession.
Conflict in Ukraine means January’s GDP boost is unlikely to last, but Threadneedle Street still seems obsessed with curbing inflation
Graham Watson's insight:
Richard Partington wonders where interest rates are headed: January's economic growth was welcome, but the war with Ukraine has introduced massive uncertainty into markets, and raised costs, so what will the Bank of England do.
It seems like it wants to be pro-active in managing inflation, and preventing a wage-price spiral, and yet it's own data seems to suggest that there's little evidence of this occurring.
Analysis: job vacancies are high but unions are weaker now – few sectors have enough post-Covid muscle to win big rises
Graham Watson's insight:
Phillip Inman makes the justifiable assertion that for all the £600,000 man's assertions, a wage-price spiral is unlikely for a number of reasons. Yes, there are plenty of vacancies but the relatively weak bargaining position of the trade unions means that they are unlikely to be able to secure inflation-beating pay increases.
Indeed, as the article reveals, the reason for the nonsense was the fact that the Bank's assumption about the future path of inflation are predicated on wage growth remaining below inflation. So, perhaps the Governor of the Bank of England would be better served testing the validity of the assumptions that underpin his models.
It will be a "hammer blow" to morale if pay fails to keep up with inflation, the trades union body says.
Graham Watson's insight:
And so it begins - expect a lot of this in 2022. The TUC have highlighted the fact that key sector workers are likely to see sizeable cuts in their real incomes if pay deals fail to keep pace with the cost of living. From a UK economist's perspective, it's generally believed to be the case that pay increase of 4% or above tend to be inflationary, and yet at the present time, that's not enough to maintain real incomes. Is there any real danger that we might be about to enter a wage-price spiral.
The chancellor says the impact of the junior doctors' strike on NHS patients is "regrettable".
Graham Watson's insight:
To what extent are pay rises for junior doctors inflationary? It's a question probably best not addressed by an unpopular former Health Secretary almost universally hated by medical professionals would be my guess. However, it raises some interesting questions about the prospects of a wage-price spiral and something more fundamental about the nature of healthcare more generally.
The issue is that healthcare suffers from "Baumol's cost disease" a phenomenon that argues that where it's difficult to measure productivity, such as in healthcare, wages often don't keep pace with productivity gains/inflation. The problem is that this means that these wages become less competitive over time to the extent that I can't see an argument for almost anyone becoming a nurse, or even in doctor in the current environment.
Factor in a government unprepared to be honest with the nation about the future, and the fact that healthcare costs and the demand for healthcare professionals are inevitably going to rise, and it might seem like we have an almost irresolvable situation. Or is any government going to argue for higher taxes - particularly property and wealth taxes, or bringing self-employment tax rates in line with everyone else - to fund this? I suspect that the current government are seeing AI as the panacea, but suspect that this is going to see a shift in demand from one type of labour to another.
Whatever the chancellor and the Bank may suggest, wage settlements are still running behind the rate of inflation
Graham Watson's insight:
Phillip Inman writes about the notion being put about by the Chancellor and the Bank of England, arguing that wage settlements are in danger of sustaining inflation. But how true is it given that many people have operated on the basis that when pay increases get above 4% this triggers inflation?
Whilst there have been some instances of workers securing sizeable wage increases, notably Aldi warehouse workers and East Midlands airport security staff - who got a 17% increase. And yet, whilst there's still wage growth, average wages are rising by 6%, well below the 10.7% that inflation is rising at, so what happening?
Interestingly, some people are asserting that one of the reasons for inflation has been the fact that firms have taken the chance to boost their profit margins, something that is supported by empirical evidence from both the US and the UK.
Treasury officials’ fear that rising pay in pursuit of rising prices will create a vicious circle may be unjustified
Graham Watson's insight:
The Guardian is of the view that the chance of a wage-price spiral are overblown, with the current environment seemingly not supporting inflation-busting pay increases.
One of the major reasons why this is a bad thing, is that it would make many of Britain's exports lack price competitiveness.
Treasury minister Simon Clarke warns bosses to be "very careful" in setting wage increases.
Graham Watson's insight:
I absolutely hate this sort of pronouncement: the government telling people to do something that they themselves are singularly unwilling to suggest in the private sector.
Treasury Minister, Simon Clarke, has warned firms to be "very careful" in setting wage increases for fear of fuelling a wage-price spiral. Given that he's got responsibility for the pay review body, it's a clear indication that public sector workers are not going to get a pay rise remotely close to the rate of inflation. Expect fun and games later in the year, with the unions getting involved.
Conditions have improved for a select few but on wages and flexible hours, the trend for employees is generally backwards. Can the rate-setters grasp that?
Graham Watson's insight:
Phillip Inman argues that the Bank of England have misjudged the chances of there being a wage-price spiral and a sustained period of inflation. Whilst some people have seen improvements in pay and working conditions, this isn't a general trend.
So, if you work for Goldman Sachs or Deloitte or Google, you're likely to be fine but it isn't true for the rest of us.
Inflation and the cost of living crisis will drive employees in key sectors to look elsewhere for higher salaries
Graham Watson's insight:
The cost of living crisis will have a significant impact upon real incomes, and the trade unions are suggesting that as a result workers are going to be reluctant to accept real pay cuts going forward.
Analysis: Employees are in a strong position, but the Bank will be keen to avoid a wage-price spiral
Graham Watson's insight:
An interesting angle from the Guardian but I wish they'd make up their minds: at the weekend, an article about why there won't be a wage-price spiral and now this.
For what it's worth, my view is that most people can see that inflation is likely to be, relatively-speaking, transitory and many of them will get pay increases that acknowledge this even if real pay falls. What is more of a concern is that those with fewest workers' rights simply don't have the bargaining position and are now being forced into accepting almost any work in order to maintain their benefits, and it is these people that will lose out most.
Andrew Bailey says a 'painful' period of prices rising faster than wages is needed to control inflation.
Graham Watson's insight:
Easy for a man who earns £575,538 per year to say. I'm sure that he'll not be asking for any form of pay increase in the year ahead, and whilst I'm sure he doesn't want a wage-price spiral, I don't think he's in much of a position to lay down the law.
The economy is set to return to pre-Covid levels at the end of the year, but rising costs could hamper recovery.
Graham Watson's insight:
The Office for Budgetary Responsibility are forecasting that next year will see the highest inflation for 30 years. It appears to be a statement of the bleedin' obvious - a more interesting question is about whether or not this will trigger a wage-price spiral and persistent inflationary pressure.
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