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Wage demands lessen as inflation falls

Published On 13 February 2007 at 13:28:57

Wage demands on employers have lessened following the news that inflation has dropped sharply.

The latest figures from the Office for National Statistics (ONS) show that consumer prices fell by 0.8 per cent last month, bringing the consumer price index down to 2.7 per cent.

This was a welcome, if unexpected, turnaround from nine consecutive months of rising inflation, with the CPI standing at an 11-year high of three per cent in December 2006.

The Bank of England (BoE) has been forced to implement three interest rate hikes since August 2006 in a bid to stem inflation and if it had risen above three per cent, BoE governor Mervyn King would have been called to account by the Treasury.

Howard Archer, an economist with Global Insight, said that it will now be easier for employers to claim that inflation has peaked and is heading downwards when negotiating wage deals.

It also reduces the chance that interest rates will rise above 5.5 per cent in March, he added.

"This is a much more benign set of inflation data than expected, which will be of major relief to the Bank of England," concluded Mr Archer.

The retail price index, which includes wage negotiations and mortgage interest payments, also fell last month, from 4.4 per cent to 4.2 per cent.

 

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