Deals are slow to respond to soaring prices

While the retail prices index (RPI) rose to another 16-year high – 4.8% – in the year to March, pay settlements increased only slightly; the latest figures from the LRD Payline database show a median value of 3.6% in the three months to March.

Private sector settlements have made some progress, reaching 3.8%, but the public sector midpoint remains at 3.0%. The midpoint figures in manufacturing and services were also 3.8% and 3.0% respectively.

Inflation

Like the all-items RPI figure, the RPI excluding mortgage interest payments (RPIX) rose by 0.2 percentage points in the year to March, and now stands at 3.9. The Consumer Prices Index rose to 3.1%, its highest-ever level, from its February figure of 2.8%. However, forecasters continue to believe that inflation will fall during the year: the average forecast for the all-items RPI in the final quarter of 2007 is 3.2%, from a range of forecasts between 2.5% and 3.9%.

Earnings

Growth in the average earnings index for the year to February was up again at 5.1%. The private sector average rose sharply by 5.6%, but the public sector lagged behind at 2.9%; if bonuses are excluded, however, private-sector earnings growth is just 3.8% while the public-sector figure remains at 2.9%. The earnings figures in manufacturing and services were 3.0% and 5.5% respectively, or 3.6% and 3.9% excluding bonuses.