Inflation and earnings both on the rise

The month of May saw inflation - as measured by the retail price index (RPI) - increase to 2.8% from 2.5% the previous month. The all-items rate excluding mortgage interest payments (RPIX) also rose, to 2.3% - and the government's preferred inflation measure, the Consumer Prices Index (CPI), reached 1.5%, up from 1.2% in April.

Average earnings (excluding bonuses) rose by 4.1% in the year to April 2004, up from 3.9% in March. This was the fourth monthly rise in succession, and the rate of increase is now at its highest level since May 2002.

With bonuses included, average earnings rose by 4.3% in the year to April, down from 5.2% in March.

The rise in earnings prompted calls for pay restraint, although the trend among pay settlements monitored by the LRD PayLine database remains steady at 3.1% (mid-point). The Chartered Institute of Personnel and Development (CIPD) called on employers to keep a "tight rein" on wage costs and spend more on training staff.

CIPD chief economist John Philpott said: "Growth in average earnings excluding bonuses - which offers the best indicator of underlying pay pressures - has been building steadily since the middle of 2003 and, on current trends, will in the coming months start to set alarm bells ringing at the Bank of England, especially as the private sector recovery strengthens."