employment

On Wednesday, the latest official employment data released by the Office for National Statistics showed a fall in the unemployment rate to 6.9 per cent and a rise in the growth rate of one measure of annual earnings. Strong stuff. Important stuff, too – and not only for the Bank of England and what’s left of its forward guidance policy. The relationship between wages and prices is politically important; the government has been keenly waiting for the day that pay outpaces inflation.

Is this the day? Not quite.

This is perhaps the most important chart from the ONS release. It shows the annual growth rates of CPI inflation (yellow line) and pay including (dark blue line) and excluding (light blue line) bonuses for the past five years. The latest pay data refer to the annualised growth over the three months from December to February. As you can see on the right hand side of this graph, for the first time in about four years, there is convergence: total pay (including bonuses) for employees was 1.7 per cent higher than a year earlier and CPI inflation in February was also 1.7 per cent.

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