Our Pay Bulletin for July was published yesterday. It is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies. It consists of two main parts: pay trends and inflation trends.
How is pay trending?
The three-month average pay settlement rose 0.1% to 2.6% year-on-year in June. Our data is consistent with the average level of settlements we have seen since the beginning of 2011.
Source: EEF Pay Bulletin
The Labour Statistics published by ONS continue to show that pay growth in manufacturing outpaces the trend in the broader economy. In the three months to May, pay rose by 1.7% year on year in manufacturing; whereas in the whole economy, pay rose by just 0.3%, a slowdown of 0.5 percentage points from the revised figure of previous month. For a more in depth view of the Labour Statistics, please read Lee's blog from yesterday.
And what about inflation?
The annual CPI inflation rate was 1.9% in June, accelerating from 1.5% in May, in line with our forecast from last month. This latest figure continues the trend of below 2.0% inflation during 2014. The rise was mainly a result of unusual seasonal patterns in air transport and clothing prices, women's outerwear in particular, which combined to create unfavourable base effects. There were no large downward contributions in June, but a minor downward effect from miscellaneous goods and services.
Below is an interactive graph which illustrates the contributions to the change(in %) in the CPI 12-month rate in June and May:
Our inflation forecasts are similar to last month. The base effects mentioned above should soon diminish and press the CPI inflation down to 1.5% in July. Moving forward, inflation should remain below the 2% target for the rest of the year. After the Iraq-related rally, oil prices have dropped significantly over the past week. And with Libya now restoring oil production, oil prices are expected to drop further, whilst the pound is likely to stay strong. Inflationary pressure along the supply chain from manufacturers will remain subdued, as previously reported, with spare capacity continuing to bear down on margins and wages.