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UK DATA: Private regular wages a notable surprise - but MPC could play down

UK DATA
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  • Looking at more detail into that upside surprise for UK private regular wage data. It comes in at 5.96%Y/Y in the 3-months to November (so is a soft 6.0%, but still above the 5.8% MNI median).
  • A decent amount of the surprise looks to be from an upward surprise to October single month data. That has been revised up to 6.68%Y/Y from 6.42%Y/Y. The new November single month data was 6.12%Y/Y. Revisions to a year ago are minor and the September single month data was barely revised.
  • Remember that only a third of the sample is carried out each month, so really you need to compare the single month figures to where they were 3-months ago - and for this cohort private regular pay was 4.60% in August (so we have still seen a notable increase to 6.12%Y/Y).
  • So what conclusions can we draw? The BOE has doubted the data recently (and noted some inconsistencies with survey data in the December MPC minutes). While other MPC members have played down the importance of wage data if the economy starts to slow and unemployment starts to increase.
  • However, the bottom line here is that wage data at these levels remains incompatible with a 2% inflation target (particularly with stagnant productivity growth). But wage data is also a lagging indicator, responding to previous inflation rather than forward-looking.
  • So there's something for everyone here. On the one hand wage data is higher than expected, but it also seems the MPC is inclined to play down "volatility" in this series.
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  • Looking at more detail into that upside surprise for UK private regular wage data. It comes in at 5.96%Y/Y in the 3-months to November (so is a soft 6.0%, but still above the 5.8% MNI median).
  • A decent amount of the surprise looks to be from an upward surprise to October single month data. That has been revised up to 6.68%Y/Y from 6.42%Y/Y. The new November single month data was 6.12%Y/Y. Revisions to a year ago are minor and the September single month data was barely revised.
  • Remember that only a third of the sample is carried out each month, so really you need to compare the single month figures to where they were 3-months ago - and for this cohort private regular pay was 4.60% in August (so we have still seen a notable increase to 6.12%Y/Y).
  • So what conclusions can we draw? The BOE has doubted the data recently (and noted some inconsistencies with survey data in the December MPC minutes). While other MPC members have played down the importance of wage data if the economy starts to slow and unemployment starts to increase.
  • However, the bottom line here is that wage data at these levels remains incompatible with a 2% inflation target (particularly with stagnant productivity growth). But wage data is also a lagging indicator, responding to previous inflation rather than forward-looking.
  • So there's something for everyone here. On the one hand wage data is higher than expected, but it also seems the MPC is inclined to play down "volatility" in this series.