a column by Francesco D'Acunto, Ulrike Malmendier and Michael Weber for VOX: CEPR’s Policy Portal
Policymakers seek to manage inflation expectations, but we understand little about how households form and update their expectations of inflation.
The column tests Lucas's conjecture that the price changes households observe, rather than all price changes, drive expectations. A measure of individual household consumption weighted by the frequency of purchase is a statistically and economically significant driver of households' expectations.
This challenges the modelling assumptions that central bank policymakers currently make.
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Showing posts with label inflation. Show all posts
Showing posts with label inflation. Show all posts
Friday, 22 November 2019
Thursday, 21 November 2019
Resolving the missing deflation and inflation puzzles
a column by Jesper Lindé and Mathias Trabandt for VOX: CEPR’s Policy Portal
The alleged breakdown of the Phillips curve has left monetary policy researchers and central bankers wondering if we need to develop completely new models for price and wage determination.
This column argues that a relatively small alteration of the standard New Keynesian model, combined with using the nonlinear instead of the linearised solution, is sufficient to resolve the two puzzles – the ‘missing deflation’ during the recession and the ‘missing inflation’ during the recovery – underlying the supposed breakdown.
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And at last I begin to understand.
The alleged breakdown of the Phillips curve has left monetary policy researchers and central bankers wondering if we need to develop completely new models for price and wage determination.
This column argues that a relatively small alteration of the standard New Keynesian model, combined with using the nonlinear instead of the linearised solution, is sufficient to resolve the two puzzles – the ‘missing deflation’ during the recession and the ‘missing inflation’ during the recovery – underlying the supposed breakdown.
Continue reading
And at last I begin to understand.
Thursday, 14 November 2019
Does the inflow of precious metals from the New World really explain the 'Great Inflation' in renaissance Europe?
a column by Anthony Edo and Jacques Melitz for VOX: CEPR’s Policy Portal
Economists mostly argue that the Great Inflation in renaissance Europe was caused by an inflow of silver.
Historians counter that it was caused by population growth.
The column uses long-run economic data to argue that the historians' position is credible for England's economy. On this evidence, both contributed equally to inflation during this period.
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After reading this I am now a firm believer in the demographic changes causing the Great Inflation and little, if anything, due to the influx of precious metals.
I did not study history even as far as O-Level but did touch on economics doing an A-Level in maths with statistics. I’ve done an about turn!
Economists mostly argue that the Great Inflation in renaissance Europe was caused by an inflow of silver.
Historians counter that it was caused by population growth.
The column uses long-run economic data to argue that the historians' position is credible for England's economy. On this evidence, both contributed equally to inflation during this period.
Continue reading
After reading this I am now a firm believer in the demographic changes causing the Great Inflation and little, if anything, due to the influx of precious metals.
I did not study history even as far as O-Level but did touch on economics doing an A-Level in maths with statistics. I’ve done an about turn!
Wednesday, 30 October 2019
Explaining the Neoliberal turn
a post from Transforming Society: a space where research evidence and critique can create positive social change
In this long read, Roger Brown, author of The Inequality Crisis: The Facts and What We Can Do About It, outlines causes of the Neoliberal turn and shows how it has created vastly increased and unjust social inequality. Crucially, he explains where we need to begin in order to reverse the tide.
In November 1984, at the age of 90, the former Prime Minister, the Earl of Stockton (previously, Mr Harold Macmillan), made his maiden speech in the House of Lords. Besides warning, somewhat presciently, about a growing division of comparative prosperity in the South and an ailing North and Midlands, he asked where the theories of monetarism had really come from:
“Was it America?” he inquired, “Or was it Tibet? It is quite true, many of your Lordships will remember it operating in the nursery. How do you treat a cold? One nanny said, “Feed a cold”; she was a neo-Keynesian. The other said “Starve a cold”; she was a monetarist.
For about thirty years after the end of the Second World War, the advanced economies of the West enjoyed unprecedented prosperity. There were big increases in growth and productivity; there was full or near-full employment; economic inequality fell; home ownership increased; there was a considerable degree of financial stability.
Since the mid-70s we have had much smaller increases in growth, productivity and investment; lower savings and higher debt; higher unemployment, with many leaving the workforce altogether; greater market concentration; greater inequality; falling social mobility; greater poverty; increased fraud and other forms of crime; reduced trust, especially in institutions; and recurrent financial crises. Even the growth in home-ownership has tailed off. Only on inflation has the performance of the major Western economies since the mid-1970s been better than before. So why did most Western countries abandon what, on nearly all economic and social criteria, was a successful model, in favour of one that has been so much less successful?
Continue reading
In this long read, Roger Brown, author of The Inequality Crisis: The Facts and What We Can Do About It, outlines causes of the Neoliberal turn and shows how it has created vastly increased and unjust social inequality. Crucially, he explains where we need to begin in order to reverse the tide.
In November 1984, at the age of 90, the former Prime Minister, the Earl of Stockton (previously, Mr Harold Macmillan), made his maiden speech in the House of Lords. Besides warning, somewhat presciently, about a growing division of comparative prosperity in the South and an ailing North and Midlands, he asked where the theories of monetarism had really come from:
“Was it America?” he inquired, “Or was it Tibet? It is quite true, many of your Lordships will remember it operating in the nursery. How do you treat a cold? One nanny said, “Feed a cold”; she was a neo-Keynesian. The other said “Starve a cold”; she was a monetarist.
For about thirty years after the end of the Second World War, the advanced economies of the West enjoyed unprecedented prosperity. There were big increases in growth and productivity; there was full or near-full employment; economic inequality fell; home ownership increased; there was a considerable degree of financial stability.
Since the mid-70s we have had much smaller increases in growth, productivity and investment; lower savings and higher debt; higher unemployment, with many leaving the workforce altogether; greater market concentration; greater inequality; falling social mobility; greater poverty; increased fraud and other forms of crime; reduced trust, especially in institutions; and recurrent financial crises. Even the growth in home-ownership has tailed off. Only on inflation has the performance of the major Western economies since the mid-1970s been better than before. So why did most Western countries abandon what, on nearly all economic and social criteria, was a successful model, in favour of one that has been so much less successful?
Continue reading
Wednesday, 23 October 2019
The inflation puzzle in the euro area – it’s the trend not the cycle!
a column by Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin and Giovanni Ricco for VOX: CEPR’s Policy Portal
What is happening to inflation and output in the euro area? The ECB has apparently lost the ability to raise inflation and price expectations have been sliding since the last recession. Much of the policy debate has focused on the flattening of the Phillips curve.
Yet, as this column shows, estimations of the joint output-inflation process point to a decline of both output potential and trend inflation as the most relevant elements of the puzzle.
Continue reading
What is happening to inflation and output in the euro area? The ECB has apparently lost the ability to raise inflation and price expectations have been sliding since the last recession. Much of the policy debate has focused on the flattening of the Phillips curve.
Yet, as this column shows, estimations of the joint output-inflation process point to a decline of both output potential and trend inflation as the most relevant elements of the puzzle.
Continue reading
Thursday, 12 September 2019
The labour market is delivering on jobs and pay – it is vital for living standards that we keep it that way
a post by Nye Cominetti for the Resolution Foundation blog
A tight labour market is finally delivering decent pay growth. In the three months to July 2019, average weekly regular pay (i.e. excluding bonuses) grew by 1.9 per cent on the previous year (slightly down on the previous month). Given that average real pay grew by 2.1 per cent in the eight years prior to the crisis, we can safely say now that we more or less back to ‘normal’ on pay growth. And with employment (and unemployment) little changed in recent months – at record highs and close to record lows respectively – it looks like the labour market has settled into a healthy holding pattern.
But we should not take this for granted – it has taken ten years to get the economy delivering on both jobs and pay. And there remains an underlying fragility. We only have to look back to 2015 to see that a recovery can turn sour quickly. Then it was the Brexit vote, with the ensuing fall in the value of the pound and the jump in inflation choking off real pay growth. Today, stronger real pay growth is underpinned by stable inflation at normal levels, so we can be more confident that recent growth rates will be sustained. But this assumes, of course, that we do not suffer an economic shock. Our newly healthy labour market would surely not survive the economic disruption that would accompany a no-deal Brexit.
Continue reading
A tight labour market is finally delivering decent pay growth. In the three months to July 2019, average weekly regular pay (i.e. excluding bonuses) grew by 1.9 per cent on the previous year (slightly down on the previous month). Given that average real pay grew by 2.1 per cent in the eight years prior to the crisis, we can safely say now that we more or less back to ‘normal’ on pay growth. And with employment (and unemployment) little changed in recent months – at record highs and close to record lows respectively – it looks like the labour market has settled into a healthy holding pattern.
But we should not take this for granted – it has taken ten years to get the economy delivering on both jobs and pay. And there remains an underlying fragility. We only have to look back to 2015 to see that a recovery can turn sour quickly. Then it was the Brexit vote, with the ensuing fall in the value of the pound and the jump in inflation choking off real pay growth. Today, stronger real pay growth is underpinned by stable inflation at normal levels, so we can be more confident that recent growth rates will be sustained. But this assumes, of course, that we do not suffer an economic shock. Our newly healthy labour market would surely not survive the economic disruption that would accompany a no-deal Brexit.
Continue reading
Thursday, 15 August 2019
Modelling impact of economic and demographic factors on personal saving rate in the euro area
an article by Renáta Pitoňáková (Comenius University in Bratislava, Slovakia) published in International Journal of Trade and Global Markets Volume 12 Number 3/4 (2019)
Abstract
The decision of economic subjects whether to consume or save is determined by different economic, monetary, and demographic factors.
The paper focuses upon personal saving rate of the whole euro area taking into account economic and demographic aspects. The modelling uses quarterly data within 2005 Q1-2017 Q2.
The results indicate a negative relation between savings and dependency ratio of elderly suggesting savings for retirement. Government spending pushes savings up, inflation causes dissaving.
Implications are for governing bodies directing measures for investment and consumption, for pension systems when managing sustainability of pension funds due to population ageing and for households when deciding about savings or consumption.
Abstract
The decision of economic subjects whether to consume or save is determined by different economic, monetary, and demographic factors.
The paper focuses upon personal saving rate of the whole euro area taking into account economic and demographic aspects. The modelling uses quarterly data within 2005 Q1-2017 Q2.
The results indicate a negative relation between savings and dependency ratio of elderly suggesting savings for retirement. Government spending pushes savings up, inflation causes dissaving.
Implications are for governing bodies directing measures for investment and consumption, for pension systems when managing sustainability of pension funds due to population ageing and for households when deciding about savings or consumption.
Thursday, 11 July 2019
Inflation and exchange rate targeting challenges under fiscal dominance since the Global Crisis
a column by Rashad Ahmed, Joshua Aizenman and Yothin Jinjarak for VOX: CEPR’s Policy Portal
Countries have significantly increased their public-sector borrowing since the Global Crisis.
This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.
Continue reading
Countries have significantly increased their public-sector borrowing since the Global Crisis.
This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.
Continue reading
Thursday, 4 July 2019
Price and wage setting when accurate decisions are costly: Implications for monetary policy transmission
a column by James Costain and Anton Nakov for VOX: CEPR’s Policy Portal
Recent low inflation is motivating new research to better characterise how individual firms and workers set prices and wages.
This column describes a new approach which emphasises that the costs of decision making may limit the precision of price and wage changes. As well as making better sense of price and wage changes in microeconomic data, this new approach also strikes a middle ground between two leading models of monetary policy transmission, improving our quantitative understanding of the short-run effects of monetary policy on output and the short-run trade-off between inflation and unemployment.
Continue reading
Recent low inflation is motivating new research to better characterise how individual firms and workers set prices and wages.
This column describes a new approach which emphasises that the costs of decision making may limit the precision of price and wage changes. As well as making better sense of price and wage changes in microeconomic data, this new approach also strikes a middle ground between two leading models of monetary policy transmission, improving our quantitative understanding of the short-run effects of monetary policy on output and the short-run trade-off between inflation and unemployment.
Continue reading
Thursday, 18 April 2019
The great disinflation in emerging and developing economies
a column by Jongrim Ha, M. Ayhan Kose and Franziska Ohnsorge for VOX: CEPR’s Policy Portal
Emerging market and developing economies have achieved a remarkable decline in inflation since the early 1970s, supported by robust monetary policy frameworks, strengthening of global trade, financial integration, and the disruptions caused by the global crisis.
The column argues that a continuation of low and stable inflation in these countries is not guaranteed. If this wave of structural and policy-related factors loses momentum, elevated inflation could re-emerge. Policymakers may find that maintaining low inflation is as difficult as achieving it.
Continue reading
Emerging market and developing economies have achieved a remarkable decline in inflation since the early 1970s, supported by robust monetary policy frameworks, strengthening of global trade, financial integration, and the disruptions caused by the global crisis.
The column argues that a continuation of low and stable inflation in these countries is not guaranteed. If this wave of structural and policy-related factors loses momentum, elevated inflation could re-emerge. Policymakers may find that maintaining low inflation is as difficult as achieving it.
Continue reading
Tuesday, 30 October 2018
The 'real' illusion: How monetary factors matter in low-for-long rates
a column by Claudio Borio, Piti Disyatat, Mikael Juselius and Phurichai Rungcharoenkitkul for VOX: CEPR’s Policy Portal
Has the decline in real (inflation-adjusted) interest rates over the last 30 years been driven by variations in desired saving and investment, as commonly presumed?
And is this a useful way of thinking about the determination of real interest rates more generally, at least over long horizons?
This column finds that this is not the case by systematically examining the relationship between several saving-investment drivers and market real interest rates (as well as estimates of natural rates) since the 1870s and for 19 countries. By contrast, a clear and robust role for monetary policy regimes emerges. The analysis has significant implications for the notion of monetary neutrality and policymaking.
Continue reading
Has the decline in real (inflation-adjusted) interest rates over the last 30 years been driven by variations in desired saving and investment, as commonly presumed?
And is this a useful way of thinking about the determination of real interest rates more generally, at least over long horizons?
This column finds that this is not the case by systematically examining the relationship between several saving-investment drivers and market real interest rates (as well as estimates of natural rates) since the 1870s and for 19 countries. By contrast, a clear and robust role for monetary policy regimes emerges. The analysis has significant implications for the notion of monetary neutrality and policymaking.
Continue reading
Tuesday, 15 May 2018
A genie in a bottle: Inflation, globalisation, and competition
a column by Dan Andrews, Peter Gal and William Witheridge for VOX: CEPR’s Policy Portal
Low inflation at the same time as rising global competition has led to a debate on the importance of globalisation for domestic inflation. This column suggests that greater participation in global value chains has placed downward pressure on inflation. The current higher level of global value chain integration may also dampen inflation by accentuating the impact of global economic slack on domestic inflation. There is a risk that stalling globalisation since the crisis, coupled with stronger aggregate demand and declining market contestability, could lead to inflationary pressures in the medium term.
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Low inflation at the same time as rising global competition has led to a debate on the importance of globalisation for domestic inflation. This column suggests that greater participation in global value chains has placed downward pressure on inflation. The current higher level of global value chain integration may also dampen inflation by accentuating the impact of global economic slack on domestic inflation. There is a risk that stalling globalisation since the crisis, coupled with stronger aggregate demand and declining market contestability, could lead to inflationary pressures in the medium term.
Continue reading
Sunday, 8 April 2018
Stabilising the real economy increases average output
a column by Karl Walentin and Andreas Westermark for VOX: CEPR’s Policy Portal
The Great Recession has spawned a vigorous debate regarding the potential benefits of stabilising the real economy. This issue takes on additional importance as the current economic situation in some countries, including the US, seem to imply an interesting monetary policy trade-off between stabilising the inflation and the unemployment level. This column summarises research indicating that stabilising the real economy raises the long-run level of output.
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One idea really caught my attention. I’ll comment in relation to my own experience.
When I worked for the Employment Department / MSC in its many guises I learned how to conduct an interview, how to find information, how to program and lots of other things. I learned “on the job” and if there was something else I needed to learn it was provided. Including paid time off to do an O-level in Statistics.
Running my own business was rather different. I had to justify paying for the training I thought I needed but much of my learning came through community groups with an annual subscription. I was in work and learned what was necessary to keep me in work.
Learning came through working. If I was to be unemployed then my learning would cease. The human capital of this household would decrease. Multiply this by the thousands of people laid off in the Great Recession then we realise that human capital decreases.
The Great Recession has spawned a vigorous debate regarding the potential benefits of stabilising the real economy. This issue takes on additional importance as the current economic situation in some countries, including the US, seem to imply an interesting monetary policy trade-off between stabilising the inflation and the unemployment level. This column summarises research indicating that stabilising the real economy raises the long-run level of output.
Continue reading
One idea really caught my attention. I’ll comment in relation to my own experience.
When I worked for the Employment Department / MSC in its many guises I learned how to conduct an interview, how to find information, how to program and lots of other things. I learned “on the job” and if there was something else I needed to learn it was provided. Including paid time off to do an O-level in Statistics.
Running my own business was rather different. I had to justify paying for the training I thought I needed but much of my learning came through community groups with an annual subscription. I was in work and learned what was necessary to keep me in work.
Learning came through working. If I was to be unemployed then my learning would cease. The human capital of this household would decrease. Multiply this by the thousands of people laid off in the Great Recession then we realise that human capital decreases.
Monday, 26 March 2018
Oil prices do not affect inflation expectations after all
a column by Cristina Conflitti and Riccardo Cristadoro for VOX: CEPR’s Policy Portal
A recent strand of literature suggests that the decline of long-term inflation expectations observed between 2014 and 2016 was partly due to the fall in oil prices. Using euro area data, this column argues that this presumed relationship is false. Lower global demand prompted a positive correlation between oil prices and the real economy, while perceived constraints on monetary policy action resulted in a positive correlation between short- and long-term inflation expectations. These two phenomena explain the emergence of the apparent direct relationship.
Continue reading
A recent strand of literature suggests that the decline of long-term inflation expectations observed between 2014 and 2016 was partly due to the fall in oil prices. Using euro area data, this column argues that this presumed relationship is false. Lower global demand prompted a positive correlation between oil prices and the real economy, while perceived constraints on monetary policy action resulted in a positive correlation between short- and long-term inflation expectations. These two phenomena explain the emergence of the apparent direct relationship.
Continue reading
Friday, 23 March 2018
The convergence in emerging market inflation
a column by Kevin Daly and Loughlan O'Doherty for VOX: CEPR’s Policy Portal
Recent years have seen emerging market economy inflation rates converge towards developed economy rates, as well as convergence between emerging markets. The sustained improved inflation performance in emerging markets has occurred even as unemployment in many of these economies has fallen to record lows. This column attributes the improved performance to two factors: increases in monetary policy credibility following the widespread introduction of inflation targeting, and a reduction in the frequency of emerging market currency crises, reflecting a secular improvement in their balance sheets.
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Recent years have seen emerging market economy inflation rates converge towards developed economy rates, as well as convergence between emerging markets. The sustained improved inflation performance in emerging markets has occurred even as unemployment in many of these economies has fallen to record lows. This column attributes the improved performance to two factors: increases in monetary policy credibility following the widespread introduction of inflation targeting, and a reduction in the frequency of emerging market currency crises, reflecting a secular improvement in their balance sheets.
Continue reading
Wednesday, 12 April 2017
Controversies around inflation measurement: Have annual real wages fallen by £2,100 or £1,200 or £800?
via Touchstone Blog from the TUC by Geoff Tily in Economics
Whatever way you look at it, this week’s [week of 22 March] inflation figures illustrate the threat to living standards that result from the fall in sterling after the referendum.Whatever way you look at it, this week’s inflation figures illustrate the threat to living standards that result from the fall in sterling after the referendum.
Headline inflation in February rose to 2.3%. Last week’s average earnings data for January (regular pay) was 2.3%. Real earnings growth is therefore zero. If as is likely inflation continues to rise and earnings growth continues to fall, once more pay growth will fall behind rises in the costs of living. ‘Once more’, because of course ever since the financial crisis this has been the norm.
But the story is complicated by the ONS leading on a new measure of ‘CPIH’ inflation rather than CPI inflation.
Continue reading
Whatever way you look at it, this week’s [week of 22 March] inflation figures illustrate the threat to living standards that result from the fall in sterling after the referendum.Whatever way you look at it, this week’s inflation figures illustrate the threat to living standards that result from the fall in sterling after the referendum.
Headline inflation in February rose to 2.3%. Last week’s average earnings data for January (regular pay) was 2.3%. Real earnings growth is therefore zero. If as is likely inflation continues to rise and earnings growth continues to fall, once more pay growth will fall behind rises in the costs of living. ‘Once more’, because of course ever since the financial crisis this has been the norm.
But the story is complicated by the ONS leading on a new measure of ‘CPIH’ inflation rather than CPI inflation.
Continue reading
Tuesday, 14 March 2017
The welfare myth of them and us
via Policy Press: a blog post
Read the complete preface to the second edition of John Hill’s influential Good times, bad times below. This ground-breaking book uses extensive research and survey evidence to challenge the myth that the population divides into those who benefit from the welfare state and those who pay into it – ‘skivers’ and ‘strivers’, ‘them’ and ‘us’.
“Good times, bad times was completed in 2014. A great deal has happened in UK politics and policy since then, not least the election of a majority Conservative government led by David Cameron in May 2015, the result of the referendum in June 2016 for Britain to leave the European Union, and the subsequent appointment of Theresa May as Prime Minister in July 2016.
Through all of this, the issues discussed in this book have remained central. One of its themes is the way that our lives are ever-changing.
Sometimes this is simply because we get older, we form – and dissolve – marriages and other partnerships, children are born, and they leave home.
But it is also because we move in and out of work, change and lose jobs, and what comes in from work and other sources can change not just from year to- year with our careers, but also from month-to-month, or even day-to-day, in ways highlighted by the spread of ‘zero hours contracts’.
Our needs – for education and for health and social care – change as we grow older, but also with the fluctuations in our state of health.
Continue reading
Read the complete preface to the second edition of John Hill’s influential Good times, bad times below. This ground-breaking book uses extensive research and survey evidence to challenge the myth that the population divides into those who benefit from the welfare state and those who pay into it – ‘skivers’ and ‘strivers’, ‘them’ and ‘us’.
“Good times, bad times was completed in 2014. A great deal has happened in UK politics and policy since then, not least the election of a majority Conservative government led by David Cameron in May 2015, the result of the referendum in June 2016 for Britain to leave the European Union, and the subsequent appointment of Theresa May as Prime Minister in July 2016.
Through all of this, the issues discussed in this book have remained central. One of its themes is the way that our lives are ever-changing.
Sometimes this is simply because we get older, we form – and dissolve – marriages and other partnerships, children are born, and they leave home.
But it is also because we move in and out of work, change and lose jobs, and what comes in from work and other sources can change not just from year to- year with our careers, but also from month-to-month, or even day-to-day, in ways highlighted by the spread of ‘zero hours contracts’.
Our needs – for education and for health and social care – change as we grow older, but also with the fluctuations in our state of health.
Continue reading
Saturday, 31 January 2015
Why Making Up Lost Ground on Pay is so Important
via Touchstone Blog from the TUC by Richard Exell
Last week’s employment figures showed the annual increase in average weekly earnings (regular pay) rising to 1.8 per cent, higher than the most recent inflation figures (1.6 per cent for the Retail Price Index, 0.5 per cent using the CPI).
Continue reading
A lot of useful links to other information and a revealing graph
Last week’s employment figures showed the annual increase in average weekly earnings (regular pay) rising to 1.8 per cent, higher than the most recent inflation figures (1.6 per cent for the Retail Price Index, 0.5 per cent using the CPI).
Continue reading
A lot of useful links to other information and a revealing graph
Thursday, 21 February 2013
Labour market recovery continues, but real wages still sliding
via The Work Founation News by Charles Levy
Commenting on today’s [20 February 2013] labour market statistics, Charles Levy, senior economist at The Work Foundation, said:
“The ONS have today confirmed that at the end of last year the labour market was continuing to recover strongly. Comparing the three months to December with the previous three months, employment increased by an impressive 154,000, taking the annual tally of new jobs created to 584,000. We should be particularly encouraged by the fact that our economy is now consistently creating full-time work – full-time employee jobs increased by 167,000 over the three month period. And the number of individuals reporting that they are working part-time because they can’t find full-time work is finally starting to fall.
“However, wage growth remains low, tempering what would otherwise be a very positive picture. Annual increases in total pay were only 1.4% in December, well behind inflation. This means that on average, living standards for those in work are still falling.
“The increase in long-term male youth unemployment of 16,000 also signifies just how tough the labour market remains for the 2.5m people who are looking for work.”
Commenting on today’s [20 February 2013] labour market statistics, Charles Levy, senior economist at The Work Foundation, said:
“The ONS have today confirmed that at the end of last year the labour market was continuing to recover strongly. Comparing the three months to December with the previous three months, employment increased by an impressive 154,000, taking the annual tally of new jobs created to 584,000. We should be particularly encouraged by the fact that our economy is now consistently creating full-time work – full-time employee jobs increased by 167,000 over the three month period. And the number of individuals reporting that they are working part-time because they can’t find full-time work is finally starting to fall.
“However, wage growth remains low, tempering what would otherwise be a very positive picture. Annual increases in total pay were only 1.4% in December, well behind inflation. This means that on average, living standards for those in work are still falling.
“The increase in long-term male youth unemployment of 16,000 also signifies just how tough the labour market remains for the 2.5m people who are looking for work.”
Monday, 18 February 2013
Static incomes + inflation = falling living standards
via JRF – Combined Feed by Donald Hirsch
Why should we get so worried when the Governor of the Bank of England makes a modest adjustment in his inflation forecast, guessing that prices will rise by around 3 and then 2.5 per cent in the next two years, rather than about half a per cent more slowly?
Before the present economic downturn, most people would not have expected this to make much difference to their lives, partly because earnings or benefits were expected to rise at least by inflation. But today, where so many incomes are static in money terms, every percentage point rise in prices can represent a one per cent fall in living standards.
The link between inflation and falling standards of living has been particularly strong for people getting their income from public sources, since deficit reduction is being achieved partly by rigid cash limits. Public sector workers are undergoing a three-year pay freeze, which will see the real value of their pay shrink by over 10 per cent. And from this year, people on benefits and tax credits will see their income from the state rise by a fixed 1% a year for three years, regardless of level of inflation. In both cases, the faster prices rise, the harsher the real-terms cut will be.
Continue reading and despair!
Why should we get so worried when the Governor of the Bank of England makes a modest adjustment in his inflation forecast, guessing that prices will rise by around 3 and then 2.5 per cent in the next two years, rather than about half a per cent more slowly?
Before the present economic downturn, most people would not have expected this to make much difference to their lives, partly because earnings or benefits were expected to rise at least by inflation. But today, where so many incomes are static in money terms, every percentage point rise in prices can represent a one per cent fall in living standards.
The link between inflation and falling standards of living has been particularly strong for people getting their income from public sources, since deficit reduction is being achieved partly by rigid cash limits. Public sector workers are undergoing a three-year pay freeze, which will see the real value of their pay shrink by over 10 per cent. And from this year, people on benefits and tax credits will see their income from the state rise by a fixed 1% a year for three years, regardless of level of inflation. In both cases, the faster prices rise, the harsher the real-terms cut will be.
Continue reading and despair!
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