Low inflation to give biggest global pay boost in three years, says study

London, December 8

The slowing world economy looks set to get a boost from stronger consumer demand next year, as low inflation boosts the real value of workers’ pay rises to a three-year high, a survey said today.

A plunge in oil prices has pushed inflation sharply lower, and means real wages are predicted to rise by an average of 2.5 per cent globally in 2016, the study by human resources firm Korn Ferry Hay Group showed.

Nominal wage growth of 4.9 per cent across a range of 24,000 firms and organisations around the world was in line with recent years. But the fall in inflation was putting more money into the pockets of consumers globally, Benjamin Frost, a consultant with Hay Group who oversees its salary databases, said.

“A lot of what they seem to be doing is spending that money and companies are generally not doing badly either,” Frost said. “They are sharing the love with pay increases and hopefully that will come back around into their tills again.”

US workers were on course for a three per cent increase in wages at the start of 2016, resulting in a 2.7 per cent increase in real pay when taking in account projected annual inflation of about 0.3 per cent at the same time, the study showed.

In Britain, wage growth of 2.5 per cent and projected inflation of just 0.2 per cent meant British workers were on course for stronger real wage growth than the two per cent average expected for employees in western Europe.

Central banks, such as Bank of England, are watching to see if fall in inflation results in lower pay rises in cash terms, which would push down on future inflation and reduce the need for raising interest rates from their rock-bottom lows.

The study was drawn from data from companies and organisations in 110 countries.

The biggest gain in real wages by region was expected in Asia where workers in China were likely to see a 6.3 per cent increase in 2016 as demand grew for skilled workers despite the economic slowdown, it said.