All eyes on inflation for hints about future interest rate path, after wage growth eases
All eyes will be on tomorrow’s inflation data for hints about the future path of interest rates after figures out this morning showed wage growth was beginning to ease.
Although members of the Monetary Policy Committee (MPC) have been warning against “prematurely” declaring victory over inflation, today’s figures suggests that inflationary pressures are decreasing.
Total annual pay rises, including bonuses, averaged 8.1 per cent in the three months to August, down from 8.5 per cent last month and lower than economists had expected.
“With today’s release, we have now had three consecutive prints showing a clear deceleration in sequential wage pressures, although these pressures remain elevated,” Ibrahim Quadri, an analyst at Goldman Sachs said.
In other words, the direction of travel seems clear, even if the exact figures are still a little too high for comfort. But policymakers at the Bank seem increasingly sceptical of the official figures.
Yesterday Huw Pill suggested the ONS figures are “increasingly an outlier” in estimates for wage growth. Today, Swati Dhingra, an external member of the MPC noted other forward-looking measures “seem to be suggesting somewhere in the order of five per cent to six per cent wage growth.”
Wage growth could therefore already be lower than the ONS estimates, or on the cusp of falling fast.
While more complete data on unemployment has been delayed to next week, there were signs of further loosening in the labour market.
Provisional estimates on employment suggested that employment dropped by 11,000, although these figures are often subject to major revisions. Rising unemployment will ease wage pressures further.
Dhingra said “when the labour market is really loosening … it’s very hard to imagine where further momentum in wage growth is going to come from.”
So, job done?
A swathe of economists think there is nothing in the data to prompt the Bank to raise rates again. If inflation falls in line with predictions tomorrow, then the chances of a further interest rate hike look remote.