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Low inflation means more pay freezes likely

19/02/2009

In January, inflation stood at 3% – and at 0.1%.

The two figures reflect two different ways of measuring inflation. CPI (Consumer Price Index) and RPI (Retail Price Index) both ‘measure the average changes month-to-month in prices of consumer goods and services purchased in the UK’, in the words of the Office for National Statistics, but they measure them in different ways.

Perhaps the most significant difference today is the fact that RPI includes mortgage interest payments and house depreciation, while CPI doesn’t. With the Bank of England’s base rate at an all-time low and house prices dropping steadily, this obviously means there’s a big difference between CPI and RPI.

At 0.1%, today’s RPI figure may mean the cost of living has stopped rising so rapidly for some people, but it’s likely to have a negative impact on many people – including those who don’t benefit from lower mortgage payments.

After all, many pay agreements are linked to RPI, so workers may be even less likely than they’d thought to receive a pay rise this year.

“Today’s economic climate already meant that many people were facing the prospect of a pay freeze,” said a spokesperson for Debt Advisers Direct, “but the sharp fall in RPI makes this even more likely – at a time when many people will feel they can hardly afford a pay freeze. For anyone with debt problems, this will be particularly unwelcome news.”

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Debt Advisers Direct offer free debt advice and a range of debt solutions, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

Consumers took on more mortgage debt in July 26/08/2010 - Consumers took on £2bn more mortgage debt than they repaid Debts called in by parents 26/08/2010 - According to research, `the bank of Mum and Dad` is Teenagers `scared of debt` 19/08/2010 - Nearly two thirds of teenagers are `scared` of debt, according Rising household costs could pressure people in debt 10/08/2010 - The UK may be about to see a rise in