Record low inflation figure will keep pay settlements down

The sharp fall in the rate of inflation will further depress growth in average earnings this year, the CIPD has warned.

The rate of inflation as measured by the headline Retail Prices Index (RPI) fell to -1.2% in April, the lowest since records began in June 1948, according to the Office for National Statistics. That is a fall of 1.2% on the year, compared with -0.4% in March.

The Consumer Prices Index (CPI) fell to 2.3% from 2.9% in March. That was the lowest since January 2008 and below analysts’ expectations of 2.4%.

John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD) said: “With eight in 10 employers using RPI inflation as a cost-of-living benchmark when setting pay, and unemployment rising faster than at any time for a generation, the ongoing squeeze on pay is set to continue, particularly in the private sector.

“It is now almost certain that growth in average earnings will moderate to an annual rate of 2% or less by the end of the year.”

Earlier this year the CIPD warned that 2009 would be a “sping and summer of pay depression”.

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