Record pay growth continues to be eroded by inflation

In May 2023, average weekly pay (excluding bonuses) was up 7.3% year-on-year, according to the latest release from ONS.

This is the highest rate of growth on record, outside of the COVID period and matches the growth seen last month.

Pay growth for private sector workers continues to strengthen, up 7.7%, the largest growth rate seen outside of the pandemic period. Public sector pay continues to rise, up 5.8% year-on-year.

Rising public sector pay growth may be behind the falling rates of industrial disputes as more pay settlements are agreed. In May, only 128,000 working days were lost due to industrial disputes. This is the lowest number of days lost since July 2022.

Pay growth is potentially inflationary. It is possible for a damaging wage-price spiral to develop, with waves of inflation driving higher pay which in turn drives further inflation in a vicious cycle.

IGD released its latest forecasts for food inflation last month, predicting a slow decline for food inflation in 2023.

Even though pay growth is at record levels, it continues to lag inflation, meaning that the real value of pay continued to decline in May. Real pay has now been falling for over a year and half, as shown on Chart 1.

Using the wider RPI measure of inflation, which gives a wide coverage of housing costs, real wages are down 5.1% year on year.

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Click chart to enlarge