Sorry, Wages Aren’t Actually Rising Faster Than Prices

Major news outlets are reporting that wage growth has outstripped inflation for the first time in years. But they’ve all made a mistake with their figures.

1. The media is awash with reports that wages are finally rising faster than inflation.

BBC News / Via bbc.co.uk

The rate of wage growth really matters because for six years wage growth has been much lower than inflation, the annual increase in the price of goods.

This means that people have found themselves coping with falling living standards as goods and services become more expensive in real terms – they can’t afford the same things they used to buy.

Labour has made this a key part of its political strategy by talking about a “cost of living crisis”.

So the moment when earnings growth passes inflation is a major political moment, because it allows the coalition parties to argue, rightly or wrongly, that Labour’s criticism isn’t right.

2. Even political parties are pushing the line that wages are now growing faster than inflation. This is the official Lib Dem press release:

3. If wages had indeed stopped falling in real terms, then people would be able to afford to buy more goods.

Sky News / Via news.sky.com

4. Unfortunately, this isn’t true yet. They are comparing the inflation figure for March to the wage growth figure for February.

5. Inflation in February was 1.7%. So February’s wages are merely level with inflation. Wages are still flat-lining – for now.

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It’s an easy mistake to make because the Office for National Statistics published March’s inflation figures this week, but has only just published the February wage figures. Wage data takes almost an extra month to come out.

In practice, the difference between 1.6% and 1.7% isn’t huge, especially because the crossover point is bound to happen sooner or later.

The headline figures are also a rolling average, and the measurements themselves have a margin of error, so as always with statistics, things are nuanced. But politically, how these figures are reported will make a difference.

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