Slowdown in inflation and pay continues

The latest settlement figures from LRD Payline show a median increase of 3.3% for the three months to December 2005 - the highest level since the 3.5% reported in July.

Non-manual workers had the best settlements in this period, with a 3.8% median increase, although their median increase across the pay round since August 2005 is no better than the whole-economy median of 3.0%. The private sector median rose slightly to 3.4%, but in the public sector it remained at 3.0%. Settlements in services (3.3%) were slightly ahead of manufacturing (3.2%).

Inflation

Growth in both the all-items retail prices index (RPI) and the RPI excluding mortgage interest payments (RPIX) slowed this month; the increases for the year to December were 2.2% and 2.0% respectively.

The government's preferred inflation measure, the consumer prices Index (CPI), also increased by 2.0% - the official target rate. This too is a slowdown from November's 2.1%.

Economic forecasts collated by the Treasury show that the average forecast for the last quarter of 2006 is little different from the current RPI. They also forecast an average earnings increase for 2006 of 4.3%.

Earnings

The latest average earnings figures, for the year to November 2005, show a 3.4% average increase across the economy - but there are wide variations between sectors, with manufacturing and public sector workers performing well above the average.