RMT PAY BULLETIN: Sept to Dec 2017
RPI inflation (change in cost of living relative to same time one year earlier) remains high at 3.9%.
However, inflation has likely peaked. For the final three months of 2018, annual RPI (according to the latest forecasts) is expected to fall to 3.2%
The Office for Budget Responsibility projects the decline will be sharper than previously estimated:
Official inflation data records how prices are changing for workers on low, middle and higher incomes on an aggregate basis (ie not adequately distinguishing between those bands). The amount that people on average or below average incomes spend on everyday living expenses (as a proportion of salary) is obviously greater than for wealthier households.
The difference in the rate of inflation as experienced by workers on the lowest incomes (1st quintile) and those in one of the higher income brackets (in the chart below, the 4th quintile) is significant, especially when compounded over time:
Meaning that those on the lowest rates of pay, who are not being offered a path by their employer to better paid work, need the highest pay award. Failing which those on the lowest rates of pay, will see the relative value of their income (ie purchasing power) decline at the steepest rate.
Forecasts in detail: RPI inflation
For Q4 2018 – ie average rate during months of Oct, Nov and Dec 2018
the average new forecast is 3.2%
This figure is significantly below the current rate of inflation – you are advised not to volunteer to your employer, information on the size of the projected decline in inflation.
High RPI Q4 2018 forecasts to quote to employers in pay negotiations are:
Capital Economics (3.8% – forecast made in December 2017)
HSBC (3.7% – forecast made in December 2017),
Citigroup (3.6% – forecast made in December 2017)
Economic Perspectives (3.6% – forecast made in December 2017)
Forecasts in detail: Average earnings growth
For 2018 – ie average over whole of 2018
the average new forecast is 2.7%
This figure is significantly below the current rate of inflation – you are advised not to volunteer to your employer, information on the projected low increase in average earnings.
High average earnings growth forecasts for 2018 to quote to employers in pay negotiations are:
Goldman Sachs (3.5% – forecast made in December 2017)
Economic Perspectives (3.2% – forecast made in December 2017)
Scotiabank (3% – forecast made in December 2017)
Recent RMT Settlements
|East Midlands Trains (Customer Experience)||
||1 Apr 2017|
||2 Apr 2017|
||1 Apr 2017
1 Apr 2018
1 Apr 2019
London Transport and other Metro
|Serco London Cycle Hire Scheme||
||1 Apr 2017|
|Doppelmayr Emirates Air Line Cable Car||
|STM (Arriva Rail London)||
Cleaning and catering
|Axis Cleaning Services (Arriva Trains Wales Contract)||
||1 Oct 2017|
Road Transport and Buses
|Hants & Dorset Trim||
||1 July 2017
1 July 2018
|Stagecoach South West (Exeter, Torquay & Barnstaple)||· 1.4% (Driver Rate to £10.14)
· 1.1% (Driver Rate to £10.25)
|30 Apr 2017
30 Oct 2017
||27 Aug 2017|
|Stagecoach East Midlands (Mansfield & Worksop) – Driver and Engineering Grades||
|30 Apr 2017
26 Nov 2017
|APC Delivered||· 2.5% increase||Aug 2017|
||1 May 2017|
|Maritime and Offshore|
||7 Jan 2017
1 Apr 2017
|Serco Northlink Ferries||
||1 Oct 2017|
|Isle of Man Steam Packet||
||1 Jan 2018|
|Heysham Port (Peel Ports)||· 2.5% increase||1 June 2017|
Recent non-RMT settlements
|Moy Park (agri-food)||3.4%||Aug 2017|
|Old Bushmills Distillery (drinks production)||3.7%||Aug 2017|
|Rio Cinema (culture)||5%||Oct 2017|
|Ford – hourly paid workers (manufacturing)||4.5%||Nov 2017|
|Tesco (retail)||5.25%||Nov 2017|
We use RPI and not other measures of inflation such as CPI or CPIH
What is RPI? It measures inflation as experienced by working households
In 1914 an indicator of inflation called the “Cost of Living Index” was established. It was designed to chart the increase in the costs of workers’ basic subsistence items.
The CLI was subsequently expanded to measure changes in prices facing whole households, and in 1947 it was renamed the Retail Prices Index. The RPI – which excludes data on the spending habits of the parasitic class (ie the richest 4% of households) – was from its inception therefore, designed for use by us.
What is CPI? It is a tool for measuring the overall performance of the economy
By contrast, CPI – which was formulated by the European Union’s statistics agency, Eurostat -measures overall national economic performance. Specifically, CPI was introduced to help assess the eligibility of countries to transition to use of the ruinous Euro currency.
The Royal Statistical Society – the association for statisticians – explains that CPI was not designed to measure “inflation as perceived and experienced by households.”
CPI includes elements irrelevant to ordinary workers, such as stockbrokers’ fees and foreign students’ university tuition fees – and it also excludes most taxes. Unsurprisingly, CPI is “broadly representative of the price experience of households around two-thirds of the way up the expenditure distribution”. In other words, CPI is the measure for wealthier households with spending habits significantly looser than the average.
The Royal Statistical Society confirms that: “[The calculation method used in CPI gives] a higher weight to the higher-spending households. We [ie the RSS] do not believe this is correct for a household-based index, which should aim to measure inflation as it affects typical households.”
Why has RPI recently been criticised?
At least since George Osborne was Chancellor, the Office for National Statistics has been required to selectively sideline RPI and push CPI (and now a new version of CPI called CPIH). Further, some influential news outlets such as the Daily Mail and The Times have been waging a sustained campaign against the use of RPI.
The stated reason is that RPI is underpinned by a mathematical formula which is currently out of fashion. In fact, at its January 2016 meeting, the National Statistician’s “Advisory Panels [Technical and Stakeholder] on Consumer Prices” found that the formula used in RPI is no better or worse than alternatives: “Panel members agreed that the relative merits of the mathematical properties of elementary aggregate formulae were finely balanced.”
The real reason that RPI is being slated by the bosses and their mouthpieces is that RPI generally records higher rates of inflation than other measures – leading to higher wage settlements, than those based on alternative measures such as CPI.
What do other countries do? No other country uses CPI for domestic purposes
The Royal Statistical Society explains that “nearly all EU countries…use their own national indices [ie their equivalents of RPI] as their main uprating index. Accordingly the RSS finds that: “The UK would therefore be out of line with most international practice if it adopted the CPI, or a close derivative such as CPIH, as its main uprating index.”
The Royal Statistical Society adds that: “Neither the CPI, nor any index closely derived from it or established on similar principles [such as CPIH], will do.”
RPI could be updated
The Royal Statistical Society has proposed that RPI or its derivative RPIJ be updated. Further, the RSS has called for work on a new similar measure of inflation called “Index of Household Prices”, the status and purpose of which will – not least through its name – be clear to users.
Sadly, the ONS has been directed to freeze all work on RPI’s methodological framework. Further, its director has been publicly critical of RPI.
The ONS is instead promoting the discredited and inappropriate measure CPIH as an alternative to RPI. More positively, the ONS has begun work on a new experimental household weighted index (ie RPI type rate) which would be known as the “Household Costs Indices”.
RPI is vastly superior to CPI
The Royal Statistical Society finds that “Clearly it [CPI] cannot as it stands be considered a suitable measure of the median or modal household…[while RPI] is noticeably closer in practice to a household weighted index than the CPI.”
Any attempt by an employer to link a pay award to CPI or a new variation CPIH must be refused and should be logged with the union’s National Policy Department.
 Tanya Flower and Philip Wales of the ONS in “Variations in the Inflation Experience of UK Households: 2003-2014” published in Dec 2014. Quote at page 85, para 1 of doc linked to at: https://www.google.co.uk/search?rlz=1C2BLWB_enGB591GB591&q=%22Tanya+Flower%22+%22Philip+Wales%22+%22Variation+in+the+inflation+experience+of+UK+households%22&oq=%22Tanya+Flower%22+%22Philip+Wales%22+%22Variation+in+the+inflation+experience+of+UK+households%22&gs_l=psy-ab.3…6144.10919.0.11015.12.12.0.0.0.0.230.946.0j3j2.5.0….0…1.1.64.psy-ab..8.0.0.bEbOdZlIqk8
 Page 6, third para from bottom of page http://www.rss.org.uk/Images/PDF/influencing-change/2016/RSS-response-ONS-paper-developing-index-household-payments-Sept2016.pdf