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Irresponsible reporting about real wage growth by the BBC encourages public sector workers to strike
Bank of England governor Andrew Bailey has rightly been worried about wages accelerating in response to high inflation, so called second order effects. Accelerating wages would cause further rises in inflation and a spiralling upwards.
Yesterday's wage report showed a modest acceleration in wages but nothing that should have caused Bailey particular angst. What might have caused him some consternation, however, was the way the numbers were reported by the BBC.
The article was titled 'Record wage rises still outpaced by soaring inflation' and it contained the below chart as supporting evidence.
I downloaded the data myself and was able to reproduce the above chart as below.
Source: Office for National Statistics
In relation to the above charts, however, one should be aware that:
Wages are three month average, unlike prices which are one month. Based on one month, wages rose 5.9%, not 5.7% as reported. Thus, the gap between wage growth and inflation is not quite as big as reported.
Wages are 'regular' not 'total'. Based on 'total', wages grew 6.2%, not 5.7%, thus gap smaller still.
Inflation is based on the unharmonised consumer price index. Using the harmonised series, a more accurate measure of inflation, prices grew 8.8%, not 10.1% as reported. Gap narrows further.
The timescale of the chart is just one year which is not very long in normal times. Given that the period followed on the heels on the pandemic, it had the potential to be particularly misleading. A three year period, one going back to before the pandemic, would have been much more meaningful. (Note also that there were really only three months - February, March and April - that were responsible for the gap. Outside of these months, wages were growing in line with prices.)
Adjusting for the above gives the below chart.
As you can see, wages in real terms are exactly where they were before the pandemic, a far less inflammatory message.
The article also mentioned private sector wages having grown over the last twelve months by 6.6%, compared with 2.2% in the public sector. This again is misleading, as wages in the public sector during the pandemic held up much better than in the private sector.
Although there will be many whose wages have lagged prices over the last three years and who are as a result struggling with what has been called the 'cost of living crisis', we should from a broad perspective be welcoming the fact that average wages have over the last year started to lag inflation. This is not to say that inflation is not a problem. It clearly is and needs to come down. However, poor reporting by the national broadcaster risks giving many workers the impression that they need to start demanding bigger increases, exacerbating the possibility of a wage spiral.
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.
© Chimp Investor Ltd