How much longer will this bear market go on for?

masonic

sevenhills said:

The average worker earning £20,000 with a 5% pay rise will be £1,000 worse off in real terms in 12 months.
Do you think average wage increases will match inflation?

It would probably be worse than that for someone earning £20k, which is just above the minimum wage for a full time employee. Rents are going up way ahead of inflation in many regions, and energy is obviously rising much faster than general inflation too. Those items could make up 75% of someone's monthly expenditure. People on lower incomes are being priced out of existence.

Linton

sevenhills said:

The average worker earning £20,000 with a 5% pay rise will be £1,000 worse off in real terms in 12 months.
Do you think average wage increases will match inflation?

The median full time wage is about £31k. £20k is only about 10% above minimum wage. Hopefully average wage rises won’t match inflation as that is a recipe for continued inflation.

sevenhills

Linton said:

The median full time wage is about £31k. £20k is only about 10% above minimum wage. Hopefully average wage rises won’t match inflation as that is a recipe for continued inflation.

By your logic, you would be happy with wage rises 0.1% below inflation?
A less than inflation pay rise cannot cause inflation 

GazzaBloom

Well at least we don't live in Argentina:

Argentina hikes interest rate by 950 basis points to 69.5% (cnbc.com)

Linton

sevenhills said:

Linton said:

The median full time wage is about £31k. £20k is only about 10% above minimum wage. Hopefully average wage rises won’t match inflation as that is a recipe for continued inflation.

By your logic, you would be happy with wage rises 0.1% below inflation?
A less than inflation pay rise cannot cause inflation 

Individuals may well not be happy to receive a less than inflation rise, but it would probably cause far more unhappiness in the long run if inflation continues for an extended period.  In the long term with lower inflation we should be able to get higher growth and investment in public services which will benefit people even more. That is why we pay politicians to make difficult decisions.

Whether a less than inflation pay rise causes inflation obviously depends on how much less than inflation the pay rise is.  Any pay rise at all would extend the inflationary period for longer than absolutely necessary as the costs of extra pay are added to the external costs of more expensive fuel and passed on to the consumers.

In practice there will need to be a compromise.  In particular there are some people who could not manage with the current forecast increases in costs and others to whom they make very little difference, so plenty of opportunity to minimise serious unhappiness.

InvesterJones

sevenhills said:

A less than inflation pay rise cannot cause inflation 

Are you sure about that? I'd have thought it still causes inflation, just less inflation than before.

sevenhills

Linton said:

Individuals may well not be happy to receive a less than inflation rise, but it would probably cause far more unhappiness in the long run if inflation continues for an extended period.  In the long term with lower inflation we should be able to get higher growth and investment in public services which will benefit people even more. That is why we pay politicians to make difficult decisions.

Your logic seems to be political, rather than discussing economics.
Can you imagine what a 5% below inflation pay rise for 3/4 years would do to people's spending?

jcuurthht

sevenhills said:

Linton said:

Individuals may well not be happy to receive a less than inflation rise, but it would probably cause far more unhappiness in the long run if inflation continues for an extended period.  In the long term with lower inflation we should be able to get higher growth and investment in public services which will benefit people even more. That is why we pay politicians to make difficult decisions.

Your logic seems to be political, rather than discussing economics.
Can you imagine what a 5% below inflation pay rise for 3/4 years would do to people's spending?

More debt? More money spent on needs than wants?

InvesterJones

sevenhills said:

Linton said:

Individuals may well not be happy to receive a less than inflation rise, but it would probably cause far more unhappiness in the long run if inflation continues for an extended period.  In the long term with lower inflation we should be able to get higher growth and investment in public services which will benefit people even more. That is why we pay politicians to make difficult decisions.

Your logic seems to be political, rather than discussing economics.
Can you imagine what a 5% below inflation pay rise for 3/4 years would do to people's spending?

Politics and economics are well linked of course. The problem if you chase inflation with pay rises is that you're effectively pushing the cart away that you're trying to catch up with - you'll always be behind and then because of all the other ill effects of high inflation you'll add extra misery on top.

Below inflation pay rises of course reduces people's spending power - that's actually a good thing economically speaking when inflation is high. The temporary hit to the economy is necessary pain in order to get inflation on track. But it is temporary, compared to the alternative of letting inflation continue to run high. To consider a 5% below inflation pay rise for 3/4 years you'd be talking about inflation running at >7% for 3/4 years, which last happened 1978-1982.

Linton

sevenhills said:

Linton said:

Individuals may well not be happy to receive a less than inflation rise, but it would probably cause far more unhappiness in the long run if inflation continues for an extended period.  In the long term with lower inflation we should be able to get higher growth and investment in public services which will benefit people even more. That is why we pay politicians to make difficult decisions.

Your logic seems to be political, rather than discussing economics.
Can you imagine what a 5% below inflation pay rise for 3/4 years would do to people's spending?

An increase in wages by 5% less than inflation would lead to a decrease in peoples spending and hence a reduction in inflation by increasing the pressure of market forces on suppliers. However the reduction in inflation would be limited as increased wage costs lead to increased production costs which would need to be paid for. That is basic economics.

The political aspect is in deciding what one does about it.