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How to end endless arguments


A long-running debate between reader JohnH and almost everyone else on this site concerns (1) inflation and (2) real wages in the UK in 2015, JohnH citing various documents. I think it’s useful to get the data yourself to solve the problem. Below are three charts showing the consumer price level, year-on-year inflation and CPI deflated wages.

figure 1: UK CPI (blue), HICP (tan), logarithmic scale. Source: ONS, Eurostat via FRED. Light green shading indicates 2015M01-2015M12.

Both CPI and HICP in 2015M12 were higher than those in 2014M12. The same message, conveyed in different ways, can be seen by looking at the year-on-year inflation values ​​for 2015M12.

figure 2: UK YoY CPI inflation (blue), HICP inflation (tan). Source: ONS, Eurostat via FRED. Light green shading indicates 2015M01-2015M12.

Year-on-year inflation rates for 2015 were 0.5% (using CPI) and 0.2% (using HICP).

Therefore, 2015 year-on-year inflation is not zero or negative, although individual months may record negative am/m readings.

What about real wages?I take the OECD measure of average hourly earnings in the private sector (2015=100), and

image 3: Average hourly earnings in the UK private sector (2015=100) deflated by CPI, on a logarithmic scale. Source: ONS, via FRED, OECD and author’s calculations. Light green shading indicates 2015M01-2015M12.

The average real wage in 2015 rose from 98.4 in 2014M12 to 100.1 in 2015M12, a logarithmic increase of 1.6%.

I would venture a guess that real wages rose because the output gap nearly halved from 2014 to 2015 (according to the latest IMF WEO estimates). Note that inflation was much higher in 2016 (1.8% CPI y/y), but real wages rose by 1.3%.

While real wages did rise in 2015, ignoring the longer-span data could mean people may be taking things out of context. That’s Cameron’s real wages at the start of the austerity measures.

Figure 4: Average hourly earnings in the UK private sector (2015=100) deflated by CPI, on a logarithmic scale. Source: ONS, via FRED, OECD and author’s calculations. Light green shading indicates 2015M01-2015M12. Dotted red line in June 2010 (Osborne budget speech).

By the end of 2015, real wages had fallen by 1% relative to the specific austerity measures announced in June 2010,

Bottom line: Instead of endlessly citing numbers (eg, years through September), look at the damn numbers themselves. You can find almost anything you need in one of the sources listed in this blog post, Data Source Compendium [Updated]”.

Also, for median salaries, earnings, etc. not found before by JohnH, see this post.



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