Economists predict a trend reversal as earnings growth is poised to outpace price inflation for the first time in 14 months, ahead of the official release of statistics by the Office for National Statistics next week.
Aegon pensions director Steven Cameron says: “Economists are predicting that earnings growth may be about to overtake price inflation. This may bring some relief for those who have secured a pay increase at or above the national average, but the millions paying far higher interest on their mortgages will see that more than cancelled out.
“One group with a keen interest in how this unfolds are state pensioners. Under the triple lock, state pensions are increased annually in April by the highest of earnings growth, price inflation or 2.5 per cent.
“The earnings growth figure used is the year-on-year increase for the period May to July, published mid-September. The inflation figure used is the year-on-year increase till September, published in mid-October. Both are currently well above 2.5 per cent.
“The triple lock has come under intense scrutiny in recent years because of the volatility in earnings growth during the pandemic, and more recently because of sky-rocketing inflation, which reached double figures late in 2022 and has remained stubbornly high.
“In April 2022, the Government suspended the earnings component because of furlough distortions, meaning state pensioners received an increase based on the previous September’s inflation of 3.1 per cent which was around half the level inflation had risen to by April 2022. In April 2023, particularly high inflation meant state pensioners received a double-digit increase of 10.1 per cent.
“If earnings growth does exceed price inflation in the coming months, state pensioners may be winners, particularly as they are less likely to be affected by rocketing mortgage costs and could also be benefitting from higher interest rates on cash savings.”
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