The latest inflation figures, showing a rise in the annual rate to 4 per cent in October, underline the cost-of-living pressures facing many households. And they show why reaching a new public sector pay deal will be difficult. The figures follow other recent data which showed a 4.1 per cent annual rise in the consumer price index in September – these figures are measured on a slightly different basis to the EU harmonised series published yesterday.
Energy is, not surprisingly, the main culprit, with prices up 4.5 per cent since last month and more than 18 per cent over the past year. The lack of any progress in ending the Gulf conflict has led to a rise in wholesale oil and gas prices and this is feeding through to consumers. If gas prices stay high, electricity costs are likely to rise again early next year. And higher energy prices also threaten to feed through more generally as businesses pass on higher costs.
The outlook for 2027 remains uncertain. Official forecasts from the Department of Finance and Central Bank see an average rate of around 3 per cent. Progress towards a solution in the Gulf and a fall in wholesale energy costs would be needed for this to be achieved. But, as the bank itself has said, a further escalation could send inflation higher again next year.
In the pay talks, the trade unions have a legitimate case to protect members from inflation, while the Government will not want to chase higher prices and put the public finances under pressure by offering too high a figure. Its initial offer, presumably a negotiating position, will clearly not be accepted by the unions, while reports of what their negotiators are seeking would be too high for the Government side.
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There is a sensible middle ground – the question is whether it can emerge soon via negotiations before another one-day strike and an intensified work-to-rule now threatened, which would cause serious disruption to the public. The latest inflation data underline the crunch issue. How do you plan for an uncertain future? For a deal to happen, both sides need to accept some of the risk.
