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Inflation rate vs wage growth: what is current UK CPI compared to 2022 wages - are salaries falling behind?

The cost of living has already weakened the spending power of households up and down the UK

The UK is in the midst of its worst cost of living crisis for decades, with household budgets being squeezed up and down the country.

Inflation is sitting at near 30-year highs, which means everything from the price of energy bills to the cost of a tank of petrol has rocketed in recent months.

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Worse is still believed to be on its way as a result of the Russia-Ukraine war.

On Tuesday (12 April), the Office for National Statistics (ONS) released its latest assessment of how wages compare to the current record rates of inflation.

They showed workers have suffered the largest fall in real terms pay since 2013, with the recent increases to the Minimum and National Living Wages at risk of being wiped out by inflation.

Energy bills and rising prices at petrol pumps have hit UK households in the pocket (image: PA)

So how much have paypackets tumbled by?

Here’s what you need to know.

How does the ONS calculate wages?

Every month, the ONS polls around 9,000 employers with its Monthly Wages and Salaries Survey (MWSS).

This survey covers an estimated 12.8 million employees - roughly 40% of the UK workforce - but does not include the wages of self-employed people.

The pounds in our pockets are not stretching as far as they were a year ago (image: PA)

When it receives the survey results, the UK statistics authority then creates a measure known as Average Weekly Earnings (AWE).

AWE includes an estimate of total pay (which includes bonus payments) and regular pay (which excludes bonuses).

The ONS also calculates these wages in numerical terms and real terms (which have been adjusted for inflation).

Are wages increasing?

In numerical terms, the ONS estimates wages are increasing.

But in real terms, they are falling.

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The average weekly total wage sat at £598 as of February 2022 - 5.2% up year-on-year.

For regular earnings, the average weekly wage packet sat at £556 as of February - 3.8% above where it was in the same month last year.

According to the ONS, these comparative rises are partly related to employees being on furlough until spring 2021.

They have also not taken into account the increase to the living wage that came in on 1 April.

How do wages compare to inflation?

While wages are going up numerically, they have actually fallen back in real terms as they are not keeping pace with rocketing inflation.

Comparing the three months to February 2022 with the same period last year, regular wages dropped 1% when the ONS’s preferred inflation yardstick CPIH - an inflation measure more heavily weighted towards housing costs - was taken into account.

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Compared to the CPI - an internationally recognised measure of inflation that’s more weighted towards consumer prices - the drop in regular wages was 1.8%.

This fall marked the steepest decline since August to October 2013.

The picture worsens when taken month-on-month (a better indicator of where things are likely to be headed given the cost of living crisis had become more acute by February 2022), as regular wages fell 2.1% compared to January - the largest fall since August 2013.

What has the reaction been?

The ONS said pay was now “falling noticeably in real terms” with the only thing maintaining levels of total pay being “strong bonuses”.

Conservative Minister for Employment Mims Davies acknowledged it was a “difficult time for many workers and families” but insisted the government was doing “everything we can to help”.

She pointed to the National Living and Minimum Wage boost as one of the steps the Boris Johnson administration had taken.

But Labour said “Conservative choices” were at fault for leaving the public “worse off”.

“At a time like this, Rishi Sunak could have chosen a one-off windfall tax on huge oil and gas company profits to cut household energy bills by up to £600,” said Pat McFadden, Labour’s shadow chief secretary to the Treasury.

“Instead, he’s decided to make Britain the only major economy to land working people with higher taxes in the midst of a cost-of-living crisis.”

It comes after independent charity the Living Wage Foundation said the National Living Wage needed to rise another £800 a year on top of the 6.6% rise given on 1 April to bring incomes in line with the cost of living.