The real cost of inflation
If the government were to announce that it was cutting the wages of all workers there would be uproar. Yet this is exactly what they have done by calling for ‘pay restraint’ and capping all wage rises at 2%. A below-inflation pay ‘rise’ is a pay cut. No amount of statistical trickery changes this fact.
The government’s favoured measure of inflation, the Consumer Price Index (CPI) is currently running around 3.3%. However, this excludes mortgage repayments. Does that mean we don’t have to pay them back out of our falling wages? No such luck. The inflation measure that does include these payments is called the Retail Price Index (RPI). It is currently running at around 4.3%. So by the government’s own figures they are imposing a pay cut of over 2%.