Summary of the editorial from IDS Pay Report 970, February 2007

Rising inflation prompts sharp rise in pay settlement levels

The first crop of 2007 pay settlements is being negotiated against a background of the highest inflation levels since 1991. City economists forecast that inflation will remain around these levels for the first two months of the year, and then rise further, before dropping back in the second half of the year. For instance, Goldman Sachs anticipates that the January figure will be 4.5 per cent, followed by 4.4 per cent in February. From there, it predicts that inflation will rise to 4.7 per cent in the year to March, followed by 4.6 per cent for April and 4.4 per cent for May. After this, it should fall back slowly, dipping below 4 per cent in the year to August.

If these predictions are correct, then we should expect to see a further pick-up in the level of settlements during the first four months of 2007. Around two-thirds of all pay increases each year are awarded in the period from January to April. Many of the January awards included in our latest snapshot were reached before inflation rose sharply to 4.4 per cent, and it would be reasonable to expect that this figure will be a key influence on settlements concluded after it was announced. We will publish a new set of inflation forecasts in our first March issue, following the release of the inflation figure for the year to January. The same issue will also include our next Pay Databank, which will present an update on the level of 2007 pay deals reached so far. 

... the full editorial can be read in IDS Pay Report 970