Pay rises and price inflation
New research from Incomes Data Services suggests that private sector pay will rise faster this year than last, but will not keep pace with price inflation.
Typical pay awards in the private sector were running at 2.2% in November. This is an improvement when compared to the 2% achieved the previous year, but still much lower than price inflation.
The Retail Prices Index (RPI) measure of price inflation stands at 4.7% for the twelve months to November 2010. As this measure of price inflation includes housing and mortgage costs, it is a fair measure to use when comparing price inflation to pay rises.
The news for employees in the public sector is even worse, with typical pay awards running at 0.75% in November.
Incomes Data Services expects public sector pay awards to fall even further in 2011, as the planned spending cuts are deployed across the various public sector departments.
When pay rises don’t keep pace with the rising cost of living, it is important to work out where the difference is going to come from. In many cases this means either reducing expenditure or reducing savings.
An undesirable step to take, if you don’t already have the gap between your income and expenditure to absorb this additional cost of living expense, is to use short-term debt to continue funding your lifestyle.
Being aware of the growing gap between your household expenditure and available income is an important financial planning step.
Because the figures quoted by Incomes Data Services are averages, it is important to look at your own situation to see how your personal pay rise compares with your personal rate of price inflation.
Photo credit: Flickr/Lee Jordan