Drop in inflation prompts calls for public sector pay freeze

A drop in inflation has promoted calls by the The Chartered Institute of Personnel and Development (CIPD) for a pay freeze for public sector workers.
It comes as the Office for National Statistics (ONS) confirmed that the inflation rate, measured by the Retail Prices Index (RPI), fell to just 0.1% in January.
As the RPI rate is the figure most often used by employers when setting pay awards, John Philpott, chief economist at the CIPD, said employees could see their pay rises fall to near zero.
The rate makes it easier for employers to present pay freezes as reasonable option and there may also be a need for employers to cut costs.
He said this outcome is most likely in the private sector, where demand generally is falling, profits are being squeezed and there is little trade union presence.
“Things are obviously different in the public sector, where pay is actually rising at a relatively fast rate at present. But at a time of considerable strain on the public finances the government should take advantage of near zero inflation to freeze public sector pay too,” he said.
The drop in inflation has sparked fears of deflation, which is the persistent decrease in the price level of goods and services, which can be partly remedied by preventing above inflation pay increases in an economic downturn.