‘Limited’ evidence of wages increases affect price of goods.

Limited Evidence of Rising Wages Affecting Goods Prices

ONS Findings on Wages and Cost of Goods According to the Office for National Statistics (ONS), there is “limited” evidence to suggest that increasing wages are responsible for the higher cost of goods. However, the ONS cautioned that rising wages may be a contributing factor to the increased costs of certain services.

Rising Wages and Concerns The rapid increase in wages has raised concerns for the Bank of England, which is worried that the public’s rising pay could lead to higher inflation, surpassing the 2% target. Chief economist Huw Pill of the Bank had even urged the public not to seek raises in the spring. Despite this, pay rises have continued to accelerate, reaching 8.5% year-on-year in the three months ending in July.

ONS Analysis and Correlation The latest analysis by the ONS, based on the Monthly Wages and Salaries Survey and the Producer Price Inquiry, suggests that wages are not the primary driver behind price increases for goods. However, they may play a role in the rising costs of certain services. The ONS pointed out that there is usually no correlation between the growth in output prices and wage growth in the manufacturing of goods. Although there appeared to be a correlation for a significant portion of this year, it followed a negative relationship between the two, which has since “dissipated.”

Impact of Wage Increases on Output Prices The ONS stated that despite wage increases, there are enough products where the output price has either stabilized or decreased, indicating that a direct correlation is not evident. It added that the growth in industry output prices is primarily influenced by other factors.

Effect of Labour Costs on Services In contrast, for many services where labor costs are a significant expense, the ONS noted that “labour costs have likely been passed through [to customers] completely.” This is particularly evident in sectors such as accountancy, law, management consultancy, advertising, architecture and engineering, technical testing, security, and office administration, where output prices have closely mirrored the theoretical impact of labor costs.

Variation in Price Increases However, the ONS also pointed out that these sectors still have relatively low price increases. On the other hand, sectors such as hotels, warehousing, and air transport, where price rises have been steeper, have experienced less of an impact from wage increases.