Inflation takes a record-breaking bite out of wages

Another month, another chance for inflation to nibble away at the nation’s pay-packets. Whilst wages are rising, they’re no match for red hot prices and in real terms people’s regular pay fell by 3% in the three months between April and June.

Once again people working in the private sector fared far better than those employed by the public sector and its clear employers are having to dig a little deeper if they want to recruit and retain people in jobs that have become less desirable since the pandemic. Warehousing, retail, hotels and restaurants, places where hours are often unsociable and there’s no chance to offer the perk of home working in lieu of wage hikes have seen the largest pay rises and it’s no coincidence that these areas also have the highest vacancy rates.

Bonuses are also coming into play and these rewards that help negate inflation for some workers and help others navigate the current cost of living crisis are likely to persist and increase over the rest of the year.

But there are signs the labour market is loosening up. Vacancies actually fell over the last quarter for the first time since mid-2020 when the first lockdown ended, and life surged back to some kind of normal. Where last month there were more job openings than unemployed people waiting to take them, the number has now equalized.

Rising prices are making some businesses think hard about their survival at a time when the consumer has already cut back and is likely to keep on doing so. Cost-cutting usually involves a long look at headcount, a quick and effective way of bolstering margins but recent events have reminded us it can also be hard to ramp back up when the economic climate turns fair once again.

There’s been little change in the employment rate which is still below pre-pandemic levels for a whole host of reasons, reasons which may be tested over the coming months. There are slight changes in the make-up of that pesky group, the economically inactive, signs that both older and particularly younger workers are re-entering the workforce, though the number of people dealing with long term sickness has risen.

The labour market has changed since the pandemic and normal service is unlikely to be resumed, at least in the short-term, which is creating challenges for employers. Wage negotiations have been tense, disputes common and with inflation only set to climb higher as the nights draw in, a summer of discontent could well continue into autumn and beyond. Wage hikes will only add to the inflation story, keep high prices sticky for longer, but without those hikes many employees simply won’t cope. It’s a dilemma being wrestled with at every level, in every home, boardroom and ministerial office.

Read the latest ONS report.

These articles are for information purposes only and are not a personal recommendation or advice.