Fastest inflation rise in over 30 years sees pay packets shrink for third time in a decade 17 November 2021 The rate of inflation has increased at its fastest rate over the past year since at least 1989, a shift that means real wages are already falling and are likely to continue to do so for the next six months, the Resolution Foundation said today (Wednesday) in response to the ONS inflation data. CPI inflation hit 4.2 per cent in October, its highest level since November 2011, and up from just 0.7 per cent in October 2020 – the fastest 12-month increase in CPI since at least 1989 (when comparable records began). Rises in housing and household services (which include energy bills rising off the back of the October price cap rise) and transport (which includes rising petrol prices), made up 79 per cent of the total increase in CPIH inflation. With price rises being driven by the global economic recovery and associated supply constraints, these inflationary pressures are volatile rather than sustained, says the Foundation. The Foundation notes that with inflation already over 4 per cent, forecast to hit 5 per cent next spring, and with the latest ONS data suggesting that underlying pay growth could have fallen to 3.4 per cent in September, real wages are already likely to be falling and could continue to shrink over the next six months. This would be the third period of sustained real wage falls in the UK in just a decade, says the Foundation. Jack Leslie, Senior Economist at the Resolution Foundation, said: “The global economic recovery has caused a rapid rise in inflation that families are feeling at the petrol pump, in their energy bills, and in their pay packets. With inflation forecast to hit 5 per cent by next Spring, we could be set for a sustained period of shrinking pay packets. “While painful for households, the fact is that the global nature of these inflationary pressures mean that traditional tools such as raising interest rates are likely to have little effect. “Instead, we need to focus on securing the as yet incomplete Covid recovery so that stronger growth creates more scope for higher pay rises.”
