Friday, Jun 20, 2008
Wage Price Inflation Spiral Plus House Price Deflation Equals Stagflation
The Market Oracle: Wage Price Inflation Spiral Plus House Price Deflation Equals Stagflation
Warnings of a further 40% hike in energy costs this year puts the Bank of England on high alert for a wage price spiral kicking in which will lead to much higher and prolonged inflation. The first signs of this are in the 14% pay hike agreed with the Shell subcontracted tanker haulers over 2 years at 7% per year which is more than double the current CPI inflation rate of 3.3%. The public sector unions are seizing this event to warn that recent pay agreements that cover the next 2 years will have to be negotiated in line with the rising cost of living signaling a 'Winter of Discontent' for Gordon Browns Labour government.
Posted by nadeem walayat @ 06:02 AM (268 views) Add Comment
2 Comments
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1. techieman said...
"workers squeezed in real-terms will demand ever higher wage settlements and employers more willing to cave in to worker demands than in the past also more eager to follow the rest of the business sector in passing on the costs to the consumer "
this implies tight employment conditions and robust underlying company profits / company profit growth. Leaving the public sector to one-side (where the issue is i think more debatable) i doubt very much if employees are in a strong position to look increased "inflation busting" wages, across the whole of the UK. Please explain why you believe, per sector - there are/ will be tight employment conditions in the coming months.
2. drewster said...
Thanks for posting this, those are nice charts. The figures had me confused for a bit: you've said -15% nominal per two years = -14% adjusted per one year. If we stick to comparing apples with apples, the two-year fall is -15% (nominal) and -26% (adjusted).
For aspiring buyers the only figure that matters is the unadjusted price, since that's what they have to pay. As techieman says, there really doesn't seem to be much scope for pay rises in the economy - employment is softening, companies are weighed under by debt, and the public purse is empty. Very few groups have the luxury of strikes. Unionised workers in cash-rich sectors are one option (c.f. the recent oil tanker drivers strikes, or even the Hollywood writers' strike), but that doesn't describe most workers in the UK.
Overall I think we can expect to see a lot more than 15% nominal price falls - I would pencil in 33% over three years, with a chance of 50% over four or five years.