Thursday 27 October 2016

Low inflation to give biggest global pay boost in three years - study

William Schomberg

Published 08/12/2015 | 07:24

Calculator with Euro notes and coins. Finance concept. Close-up.
Calculator with Euro notes and coins. Finance concept. Close-up.

The slowing world economy looks set to get a boost from stronger consumer demand next year, as low inflation boosts the real value of workers' pay rises to a three-year high, a survey said on Tuesday.

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A plunge in oil prices has pushed inflation sharply lower, and means real wages are predicted to rise by an average of 2.5pc globally in 2016, the study by human resources firm Korn Ferry Hay Group showed.

Nominal wage growth of 4.9pc across a range of 24,000 firms and organisations around the world was in line with recent years. But the fall in inflation was putting more money into the pockets of consumers globally, Benjamin Frost, a consultant with Hay Group who oversees its salary databases, said.

"A lot of what they seem to be doing is spending that money and companies are generally not doing badly either," Frost said. "They are sharing the love with pay increases and hopefully that will come back around into their tills again."

U.S. workers were on course for a 3pc increase in wages at the start of 2016, resulting in a 2.7pc increase in real pay when taking in account projected annual inflation of about 0.3pc at the same time, the study showed.

In Britain, wage growth of 2.5pc and projected inflation of just 0.2pc meant British workers were on course for stronger real wage growth than the 2pc average expected for employees in Western Europe.

Central banks, such as the Bank of England, are watching to see if the fall in inflation results in lower pay rises in cash terms, which would push down on future inflation and reduce the need for raising interest rates from their rock-bottom lows.

The study was drawn from data from companies and organisations in 110 countries.

The biggest gain in real wages by region was expected in Asia where workers in China were likely to see a 6.3pc increase in 2016 as demand grew for skilled workers despite the economy's economic slowdown, it said.


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