Our Pay Bulletin for February publishes today. It is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies.
How is pay trending? ↓
After the first major round of pay settlements came in January, the three-month average pay settlement slipped 0.1 percentage points to 2.2% year-on-year in February, the third consecutive fall since late 2014. This is also below last February’s figure of 2.6%, which is illustrated below.
Source: EEF Pay Bulletin
As for the ONS latest labour statistics (which is one month behind our pay settlements data), pay growth in both manufacturing and the whole economy have continued (yay!), but decelerated (nay!). In the three months to January, total pay rose by 1.1% year-on-year in manufacturing, a drop of 0.5 percentage points compared with the three months to December; whereas in the whole economy, total pay rose by 1.8%, a drop of 0.3 percentage points from the previous three-month period. Excluding bonuses, pay growth in manufacturing was 0.8% compared with the whole economy figure of 1.6%.
And pay deferrals? ↔
The proportion of deferrals has remained the same for four continuous months. In the three months to February, the proportion of deferrals was 6%, following a gradual climb in the second half of last year, from 0% in the three months to August 2014.
Source: EEF Pay Bulletin
What does inflation look like then? An all-time low ↓
The annual rate of CPI inflation fell to 0.0% in February from 0.3% in January, in line with our forecast. This is the lowest figure on record for CPI inflation. Even stripping out the effect of volatile price movements, such as energy and food, core inflation came in at just 1.2%, down from 1.4% in January. However, the risk of engrained deflation appears low, as much of this was a function of base effects, with last February having seen a strong increase in core inflation which was not repeated this year.
The chance of seeing a negative reading for CPI inflation over the coming months remains high, especially as three of the big six domestic energy providers cut their gas prices in the second half of February, which will feed into the inflation figures in March. The latest producer prices release also suggests that the effects of lower oil prices are continuing to feed through the supply chain. Consumers will enjoy the subsequent benefits over the coming months (check your bills and household spreadsheet), as will the manufacturing sectors which use oil products as an input, e.g. chemicals and rubber & plastics.
The inflation rate is likely to pick up towards the end of this year as the base effects, due to 2014’s collapse in oil prices, begin to kick in. But we expect core inflationary pressures to remain well anchored, and inflation to remain below the 2% target for a prolonged period. For further reading, George’s recent blog also touched on inflation and Bank of England’s concern around the monetary policy.