CPI and Wages Inflation Business Impact

CPI and Wages Inflation Business Impact.

• CPI Up But What About Wages Inflation? Will This Hurt Employers?
  

The National Institute for Economic and Social Research (NIESR) has today predicted that Consumer Prices Inflation (CPI) will rise to 4% in 2017. We have been forecasting inflation for a number of years with the combination of quantitative easing, effectively the Bank of England releasing billions of pounds into the economy together with the BREXIT vote resulting in a weaker pound meaning imported goods and services are much more expensive.

This will mean that not just the price of food will rise ought all goods and services will rise with a knock-on effect that businesses will have employees demanding pay rises adding to any additional costs that employers already have.

How will it affect businesses?

Given the news we decided to look at when we last increased our fees which was on 21 June 2010.

Since 21/6/2010, the equivalent of 100 GBP on 21 June 2010 is 113.32 GBP on 01 November 2016.  This is a real rate of inflation over the period of 13.32 % (source Office for National Statistics (ONS)), Initial Index: 114.54, End Index: 129.8).

We then decided to look at average earnings increases. As a benchmark, we decided to look at the minimum wage, now the National living wage.

Minimum wage on 01/10/2010 was £5.93 per hour for 21+ yrs old the current National Living Wage as at 01/10/2010 is £7.20 per hour.  This is an increase of 21.41%.

Whilst many employers pay staff significantly higher than the minimum wage and offer flexible holiday entitlements, most employers are also now required to make contributions by law to workplace pensions.   In our case, we contribute significantly more than the minimum employer pension contribution requirements for our staff.

The reality is that most smaller employers are struggling to meet increased running expenses costs let alone minimum wage increases combined with compulsory pension contributions.

Impact

With prices and earnings inflation, most people should not feel any worse off, albeit they may feel that they are standing still, but the long-term impact is that food prices may rise by 20%, imported goods and services will rise by around 20%, meaning that wages will need to rise by the same.

This has a snowball effect in that if we are earning more there will be a period of earnings catching up house price rises and then house prices will also start to rise.

Government conspiracy

We believe it is in the interests of most countries that have huge public sector debt i.e. the United States, China, UK and most of Western Europe to encourage inflation. These countries are literally in debt in the trillions and there is no way to repay these debts. The only way that a government can deal with its debt is to devalue it. The only way to devalue debt is to encourage inflation. This is exactly what happened to the UK in the 1980s.

Do you remember yuppies? Do you remember Margaret Thatcher's "economic miracle"? It was not a miracle that we all felt richer, that property prices went through the roof, that wages were rising and we had the birth of yuppies. We believe we are going back to an economic period similar to the late 1970s and early 1980s recessions followed by inflation fuelled boom.