Highest inf lation for 4 years sparks pay squeeze fears
MILLIONS of workers face a deeper pay squeeze than feared as inflation hit its highest level in nearly four years.
The Office for National Statistics reported that CPI inflation – the ‘consumer price index’ that measures the cost of household goods and services – reached 2.9 per cent last month, up from 2.7 per cent in April.
This is the highest level since June 2013, raising concerns that inflation could soon hit 3 per cent for the first time since April 2012.
CPIH, the most comprehensive measure of inflation which includes house prices, also nudged up from 2.6 per cent to 2.7 per cent, the highest level since April 2012.
The shock rise in the cost of living was driven by the spiralling prices of foreign holidays, as the fall in the value of the pound since Brexit has made it more expensive to go abroad.
Other factors included the rise in the cost of computer games and household goods as well as big hikes in energy bills. Experts had expected the headline CPI measure to remain at 2.7 per cent, as April’s figure was skewed by the late timing of Easter which pushed up air fares.
The Resolution Foundation, a prominent think- tank, warned the figures would herald a ‘longer and deeper’ pay squeeze and predicted that separate ONS labour figures published today will show real wages fell 0.5 per cent in the three months to April.
Figures published last month showed real wages fell 0.1 per cent in the three months to March, marking the first infla- tionary pay squeeze since 2014. Economists also warned that it could cause households to rein in spending, causing a sharper slowdown in growth.
The inflation hike is another blow to millions with lowinterest savings accounts who are also seeing the value of their nest-eggs eroded.
This all plays into the hands of Labour leader Jeremy Corbyn, who has pledged to increase the national living wage to £10 an hour, despite concerns this would cripple many small businesses.
Labour’s shadow chancellor John McDonnell yesterday described the figures as ‘deeply worrying’. Stephen Clarke, economic analyst at the Resolution Foundation, said: ‘The latest rise in inflation will be a double blow to low-income working families, who are also seeing their tax credits fall in value as they have been frozen in cash terms.’
Remain campaigners tried to blame Brexit, despite the cost of living rising fast in countries across Europe.
Lib Dem MP Vince Cable said: ‘The fall in the pound and market uncertainty since the Brexit vote are already squeezing people’s incomes across the country. This will only get worse unless Theresa May abandons her plans for an extreme, UKIP-style Brexit.’
Despite pledging to increase the living wage in its manifesto the Tories faced fresh calls to do more to help those on lower incomes.
Both the Unite and Unison unions urged the Prime Minister to lift the cap of 1 per cent on annual pay rises for public sector workers. This policy has been a mainstay of the Conservatives’ plans to slash the deficit for the last five years, and was introduced following a two-year pay freeze implemented by the Tory-led coalition in 2010.