Summary of the editorial from IDS Pay Report 992, January 2008

Higher inflation and economic uncertainty set tone for 2008 pay round

The January pay round takes place in a more uncertain economic climate than for many years, with the jury still out on the extent to which the credit crunch in finance will affect the rest of the economy. Meanwhile inflation, a key indicator for pay settlement levels, ended 2007 at 4.3 per cent in the year to November, up from 4.2 per cent in the year to October. Since this will be the inflation rate that pertains until mid-January, it will form a key benchmark for many of 2008's earliest pay negotiations and awards, and has already triggered a number of RPI-linked increases under the subsequent stages of long-term deals. These formula-based awards range between 4 and 5 per cent and have helped raise the median settlement level in the three months to January to 4 per cent.

In a submission to the Review Bodies in 2006, the Treasury argued that inflation increases were caused by 'temporary' factors. However, average inflation for 2007 now stands at 4.3 per cent overall, so the Treasury's advice has turned out to be misleading. City economists had also thought that inflation would fall, but warned of 'upside risks' from fuel and food. The latest rise is an indication of the extent of these risks.

... the full editorial can be read in IDS Pay Report 992