First rise in inflation since 2023

I agree with MaizeD that public sector wage increases do not cause inflation for the reasons she gives. It's an error propagated for political reasons.

They have more money to spend so they buy a higher value product, or pay more rent on a better house or flat

That would only apply if the price of the products, house purchase or rental payment has risen since it was last used to calculated the CPI. The CPI measures the over all percentage increase in the cost of the goods in the 'basket' over a period of time, a month, quarter or year. The fact that a consumer might choose to buy a more expensive product/ house/ rental has nothing to do with how inflation is calculated if the prices of these items remain the same as they did when previously used for the calculation.

^ On the other side if employers have to pay higher wages they have to increase their prices, which also adds to inflation.^

This is one of those simplistic ideas which gets repeated without regard to the evidence. Suppliers of goods and services have other ways of absorbing increased wage costs and research evidence shows that price increases are not an automatic response to wage increases. As Wwmk2 points out.

Inflation is caused by shortage of resources available for purchase, as we saw with the response to energy shortages caused by the war in Ukraine. Even so, in that instance, it also demonstrated that monopoly suppliers are not above profiteering in shortage situations. Energy companies made record profits over the 2022 /23 period.

Inflation can be caused by too much demand for resources in short supply (too much money chasing too few goods) but does anyone seriously think that applies in a situation where a significant portion of the population has no spare money?

If it's any consolation, jut think that the increased wages for the rail workers and for public sector workers will be spent into the domestic economy where they will help to sustain businesses. Thus keeping others in employment and contributing to GDP.

And, of course, a significant amount of the money will return to the government by way of direct and indirect taxation, thus increasing tax revenue...

Whitewavemark2

Wage growth doesn’t cause inflation, provided there is sufficient GDP growth.

That would be true, it seems to be the plan that Reeves is following, it’s going to be an uphill battle but needs to be done and I hope it is successful.

It’s going to be painful for those with above average wealth though.

Wage growth doesn’t cause inflation, provided there is sufficient GDP growth.

Ignore the last line

Public service workers may not directly influence inflation but taxes will rise to pay the extra or the service they provide will fall. Bus drivers get a pay rise but service frequency falls, or any other comparison.

MaizieD

David49

Many of the fuel prices have come down already helping inflation, while other prices are still going up, so expect some rise in the next few months. Wage rises don’t fuel inflation directly but when wages are spent they do, everyone buys slightly more.

We hope that settling the wage demands will help growth too

Sorry, David, but how can 'buying more' possibly contribute to inflation?

Would you like to explain this? As it makes no sense to me whatsoever.

I put my view in my post at 10.37 yesterday, last couple of paragraphs...

They have more money to spend so they buy a higher value product, or pay more rent on a better house or flat. On the other side if employers have to pay higher wages they have to increase their prices, which also adds to inflation.
Recently rail workers got a pay rise, ticket prices will rise, unless there is a subsidy, in which case taxes will rise.

If you disagree please tell me what does cause inflation.

David49

Many of the fuel prices have come down already helping inflation, while other prices are still going up, so expect some rise in the next few months. Wage rises don’t fuel inflation directly but when wages are spent they do, everyone buys slightly more.

We hope that settling the wage demands will help growth too

Sorry, David, but how can 'buying more' possibly contribute to inflation?

Would you like to explain this? As it makes no sense to me whatsoever.

I put my view in my post at 10.37 yesterday, last couple of paragraphs...

The Consumer Prices Index (CPI) rose by 2.2% in the 12 months to July 2024, up from 2.0% in June 2024. It’s a twelve month rolling figure based on twelve spending sectors in which some go up and some go down. It measures the net effect of those ups and downs over twelve months. Sectors are:

Food and non-alcoholic beverages
Alcohol and tobacco
Clothing and footwear
Housing and household services
Furniture and household goods
Health
Transport
Communication
Recreation and culture
Education
Restaurants and hotels
Miscellaneous goods and services

Yes, if there is more money available from better wages then prices may go up but only if demand outstrips supply in that sector leading to a rise in prices. Housing is the obvious one.

The largest upward contribution to the monthly change in both CPIH (which is CPI including owner occupiers' housing costs) and CPI annual rates came from housing and household services where prices of gas and electricity fell by less than they did last year; the largest downward contribution came from restaurants and hotels, where prices of hotels fell this year having risen last year.

More here:

www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2024#notable-movements-in-prices

Table 2 shows the ups and down.

Many of the fuel prices have come down already helping inflation, while other prices are still going up, so expect some rise in the next few months. Wage rises don’t fuel inflation directly but when wages are spent they do, everyone buys slightly more.

We hope that settling the wage demands will help growth too

Maerion

Nothing to do with wage rises. Read this.

www.theguardian.com/business/article/2024/aug/14/uk-inflation-rises-bank-of-england

Of course not. Wages are not part to inflation.

Nothing to do with wage rises. Read this.

www.theguardian.com/business/article/2024/aug/14/uk-inflation-rises-bank-of-england

I think any inflation rate, less than expected for food and fuel is good. I'd hope interest rates stabilize higher than anticipated.

Yes that is annoying isn't is GG.

Thanks MaizieD

I also have a problem with political journalists (print, TV and radio) who along with the Chancellor of the day perpetuate the myths of no money left, black hole and household economics when referring to the nation’s economy.

TBH, GG13, Having tried very hard to get a handle on 'economics' over the past few years I find that there seems to be a lot of 'truisms,' that suit particular economic/political theories, which just get repeated without any question. Particularly when they suit the dominant ideology, which, in the UK, since Thatcher has been that state spending is Bad for the economy while private sector is Good.

They don't always stand up to scrutiny, but are repeated by commentators and politicians to such and extent that the general public thinks that they must be true... The idea that increasing public sector pay contributes to inflation is one of them..

The rationale appears to be (which I've just seen repeated in the Financial Times) that increasing wages leads to increased demand which leads to higher prices. This appears to be based on a tenet of economics which says that producers will raise prices in the face of increased demand... EH

Why should producers do that? Wouldn't they increase production to satisfy the demand? As a business owner, what would you do in the face of increased demand? Ration customers? Increase prices? Increase your stock?

I am not a professional economist but even I knew that public sector pay rises haven't caused the rise in inflation.

Whilst I get what you are saying MaizieD I have always understood that public sector wage increases did have an effect on inflation, obviously I have got hold of the wrong end of the wrong stick

Thank you MaizieD

GrannyGravy13

It was to be expected with the proposed pay rises for public sector workers including NHS employees.

How do you work that out. GG13?

Wages only have an effect on inflation if they cause the prices of the items used to calculate inflation to rise.

As the public sector doesn't sell anything wage rises cannot be inflationary.

P.S Have the public sector employees actually had those rises in the pay packets yet?

The only way in which they could remotely cause some inflation is if the their extra spending creates a demand for items in short supply. This would take some time to work through.

Inflation cannot possibly be increased by wage rises which haven't even been paid.

I haven't looked at the detail yet to identify the actual cause of this small rise.

It was to be expected with the proposed pay rises for public sector workers including NHS employees.

www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2024

(My source)

Of course it was 6.3 last August.

It was bound to happen

Here’s one article.

news.sky.com/story/inflation-rate-grows-for-first-time-in-more-than-six-months-13196755#:~:text=The%20rate%20of%20inflation%20grew,rose%20slightly%20faster%20than%20before.