Inflation and settlements both dip

The 2004-05 pay round's rising trend in settlements seems to be over, with the midpoint increase on lowest basic rates in the three months to October down to 3.1%. But we are now coming into one of the busiest bargaining periods in the pay round for the private sector (where the latest midpoint figure is 3.4%), and last year's pattern of lower autumn settlement levels followed by a rising trend may be repeated.

Inflation

Recent falls in the retail prices index (RPI) have at last been reflected in the government's preferred inflation measure, the consumer prices index (CPI). After a series of increases that almost brought it up to the level of the RPI, the CPI dropped from 2.5% to 2.3% for the year to October. The RPI also fell again, to 2.5%, as did the RPI excluding mortgage interest payments; it now stands at 2.4%.

These results are in line with independent forecasts for the fourth quarter of 2005, which average out at 2.5% for RPI and 2.4% for CPI. The Longer-range forecasts, for the fourth quarter of 2006, average out at 2.3% for RPI and 1.9% for CPI.

Earnings

Increases in average earnings (including bonuses) also slowed in the year to September, dropping to 3.7% - the lowest monthly figure since July 2004. But looking at the last three months (July to September) alone, the "headline" rate of average earnings increases is still 4.1%. And if bonuses are excluded, the annual increase to September is 3.9%.