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‘Limited’ evidence that pay rises are to blame for inflation of goods, ONS says

There is “limited” evidence that rising wages are responsible for the higher cost of goods, the ONS said today, though it warned that pay may be to blame for rising costs of certain services (Evening Standard composite)
There is “limited” evidence that rising wages are responsible for the higher cost of goods, the ONS said today, though it warned that pay may be to blame for rising costs of certain services (Evening Standard composite)

There is “limited” evidence that rising wages are responsible for the higher cost of goods, the ONS said today, though it warned that pay may be to blame for rising costs of certain services.

Fast-rising wages have been a major subject of concern for the Bank of England, which fears the public’s pay is rising too fast to bring inflation back down to the 2% target.

In the spring, the Bank’s chief economist Huw Pill urged the public to not ask for raises. Since then, the pace of pay rises has only surged faster, to 8.5% year-on-year in the three months to July.

Yet the ONS’ latest analysis, based on the Monthly Wages and Salaries Survey, and the Producer Price Inquiry, suggested that wages are not driving prices up for goods, though they may be for some services.

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The official statistics body said that there is “usually there is no correlation between output price growth and wage growth” within manufacturing of goods. Although it noted that there did appear to be a correlation for a large part of this year, that followed a negative relationship between the two, and “dissipated” more recently.

“Despite wage increases, there are enough products where the output price has stopped growing or started falling so that we do not see a correlation,” the ONS said. It added that “industry output price growth has appeared to be mainly caused by other factors”.

For many services, though, where labour tends to be the main expense, the ONS said “labour costs have likely been passed through [to customers] completely”.

“In accountancy, law, management consultancy, advertising, architecture and engineering, technical testing, security and office administration, output prices have increased almost exactly in line with the theoretical scenario impact of labour costs,” it said.

But the ONS added that those sectors”still have relatively low price increases”. On the other hand, sectors such as hotels, warehousing and air transport, where price rises have been steepest, saw less of an impact from wages.