Study: Low Inflation Equals Biggest Global Pay Boost in Three Years

LONDON (Reuters) -

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 on Tuesday.

A plunge in oil prices has pushed inflation sharply lower, and means that “real wages” (aka purchasing power) are predicted to rise by an average of 2.5 percent globally in 2016, the study by human resources firm Korn Ferry Hay Group showed.

Nominal wage growth of 4.9 percent across a range of 24,000 firms and organizations around the world was in line with recent years. But the fall in inflation is 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 [it] with pay increases and hopefully that will come back around into their tills again.”

U.S. workers are on course for a 3.0 percent increase in wages at the start of 2016, resulting in a 2.7 percent increase in real pay when taking into account a projected annual inflation of about 0.3 percent for the same period, the study showed.

In Britain, wage growth of 2.5 percent and projected inflation of just 0.2 percent means British workers are on course for stronger real wage growth than the 2 percent average expected for employees in Western Europe.

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

The study was based on data amassed from companies and organizations 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 percent increase in 2016 as demand grows for skilled workers despite the economy’s economic slowdown.