Workers face an even higher drop in real-terms wages as inflation hit 10.1% in July, according to the latest consumer price index (CPI) rate from the Office for National Statistics.
The double-digits figure was a higher rate than analysts had expected – the last time inflation was so high was in February 1982, more than 40 years ago.
The Bank of England predicts it could hit more than 13% by the end of the year, driven by rising energy prices.
The retail price index (RPI) measure of inflation, which takes into account mortgage interest payments, hit 12.3% in July, up from 11.8% in June.
Coupled with the fact that real-terms wages fell by a record 3% yesterday (16 August), the soaring rates of inflation have led unions to call for urgent action to support workers with the cost of living.
While average weekly pay excluding bonuses grew by 4.7%, the ONS said, after inflation was taken into account this meant pay was worth 3% less than in the same period last year.
Inflation and wages
Grant Fitzner, chief economist at the ONS, explained that around half of the 10.1% rise is down to energy prices, while the increased cost of bakery products, dairy, meat and vegetables all mean employees’ wages do not stretch as far.
The TUC called it a “cost of living emergency”, urging ministers to cancel the proposed increase to the cap on energy bills this autumn.
“To help people with the cost of living this winter, government should bring forward increases to universal credit and the national minimum wage,” said general secretary Frances O’Grady.
“And companies that were supported by taxpayer through the pandemic must step up to help too. They should show profit restraint to help keep prices down and to prioritise pay rises for staff.”
Gary Smith, GMB’s general secretary, said workers would struggle with day-to-day living costs.
“Eating and heating are basic human needs, yet many hard-working people in our country are at the limit of what they can pay to put food on the table and power their homes,” he said. “Meanwhile, the Bank of England and our zombie government have lost control and look on helplessly as decent people are plunged into poverty. For so many, the cost of living crisis is rapidly becoming a catastrophe.”
The latest data from XpertHR echoes the ONS’s findings on pay, showing the median basic pay award in the three months to the end of July to be 4%, but lagging significantly behind CPI and RPI rates of inflation.
XpertHR said there were fewer pay awards in the top range, but 85% were worth more than those given out last year. The median pay rise in the public sector was just 2%, it said.
Sheila Attwood, pay and benefits editor, said stagnant pay awards and rising inflation were indicators that “we are by no means near the end of this volatile period”.
“For many employees already struggling with the rising cost of living, the prospect of further inflation hikes, coupled with the energy price cap increasing from October, is likely to cause significant worry,” she said.
“While important, pay increases aren’t the only means through which employers can help employees through the worst of the cost of living crisis. For example, offering free financial planning advice or discount packages to employees can help staff manage finances more efficiently and cut the cost of essential products and services.”
Ruth Thomas, learning and organisational development leader at software company Personio, said employers face a “difficult balancing act”.
“Understandably employers want to ensure employees are supported and compensated adequately, with evidence showing that financial security contributes to improved wellbeing, engagement and a sense of belonging at work,” she said.
“However, employers must ensure that any reaction is well thought out and not a knee jerk. Any decisions on salaries should be sustainable and feed into the business’ long-term people strategy.”
Thomas advised businesses to continue investing in training and supporting career development, which in turn will keep workers motivated and retain talent.
Some organisations have already offered one-off cost of living payments to support employees, the latest being Nationwide. On Monday, the building society said it would give 11,000 staff members a one-off bonus of £1,200 paid in two instalments.