Rishi Sunak says public sector pay rises will fuel inflation. Economists say they won’t

Published

2 years ago

January 4, 2023

admin

Rishi Sunak has said he cannot raise public sector wages because doing so will fuel inflation.

The government has warned of a “wage-price spiral”, also known as wage-push inflation, in which prices rise (inflation) due to higher wages which, in turn, increase prices in a perpetual loop.

As more workers go on strike this month demanding their pay matches or beats inflation – which stands at 10.7% – two economics experts have told Sky News the government is not correct in its assessment.

They agreed increasing public sector wages would not push up inflation.

Dr Ethan Ilzetzki
Associate professor of economics, London School of Economics

“It’s very wrong-minded of the government to approach it in this way,” Dr Ilzetzki said.

“Private sector wages do feed into inflation – wages increase, costs increase and they want to pass that on to the consumer.

“So private sector wages are more likely to lead to inflation or a wage-price spiral but there’s no similar way that the public sector could cause inflation.

“The caveat is, of course, an increase in public expenditure could lead to inflation and public wages are one way public expenditure is increased, but the government could increase wages and cut other parts of the budget.”

He said the conflict between the government and public sector workers is essentially political and about “who burdens the cost”.

The Bank of England’s job is to keep inflation close to 2%, he added, so “the first order of business is to bring inflation down” to that figure.

“The Bank of England always has the ability to bring inflation down, even if its caused by global energy prices or geopolitical conflict,” Dr Ilzetzki said.

“That does have a cost: the further slowing down of the economy which has already plummeted, so the Bank of England does have an unenviable task but it has a very clear mandate to keep prices at a constant level.”

He added that the friction between the unions and the government is “about taking responsibility for economic problems” that politicians “need to address”.

Professor Alex Bryson
Professor of quantitative social science, University College London

“The government’s concern with wage-push inflation is misconceived as they’re missing much of the bigger picture: unemployment and shrinking of the size of the economy,” Prof Bryson said.

“Past periods of recession inflation were often followed by deflation – this happened in 2008.

“But this episode is different, the chief reason [for inflation rising] was not wage-push but COVID-induced restraints, which hike prices but will die back over time, as well as energy prices and ongoing uncertainty over Ukraine.”

He said unemployment rates have been low for a long time and wages have been relatively stagnant, which has meant workers’ arguing power is “not so great”.

“There are more benefits for the government paying public sector workers more than not, it’s conceivable they could benefit from an increased low turnover, which would cost the public less than it does now,” he said.

“Even a substantial pay rise will not see public sector workers catching up on the pay gap with the private sector that has been widening since 2010.”

Prof Bryson said he thinks the UK is already in recession and it will be “long and deep”.

“We’re seeing a deeper recession than is currently identified, we saw that before with the great recession of 2008 so you would expect that would normally mean a spike in unemployment,” he said.

“Surveys in recent months show an increased proportion of indexes in the labour market saying unemployment will rise in the next 12 months.

“That will mean GDP is lower than it currently is which will mean inflation will start to fall.”

He added that at the moment, the government should be more worried about high non-employment – those not in work and not seeking work – and underemployment – those who want to work more hours but do not have the opportunity to.

“Their focus should be on reducing the rate at which real wages are falling,” Prof Bryson said.

“It’s not clear to me whether the government will be able to hold their line on wage-push inflation, especially if the unions are holding out as they seem to be.”

World

‘People were crying, they were trapped’: Spain reels from deadly flash floods

Published

8 hours ago

November 1, 2024

admin

'People were crying, they were trapped': Spain reels from deadly flash floods

Emergency responders are searching for bodies inside stranded cars and buildings following deadly flash floods in Spain that have killed at least 158 people.

Scenes of destruction have been left in the wake of the powerful floodwaters which hit the east of the country late on Tuesday and early Wednesday, marking Spain‘s worst natural disaster this century.

Cars have been piled high on top of each other, homes and businesses have been swept away, trees have been uprooted, and roads and bridges have been left unrecognisable.

Spain flooding latest: Looting breaks out as flood deaths rise

At least 92 people have died in the worst-hit region of Valencia, while deaths were also reported in Castilla La Mancha and southern Andalusia.

An unknown number of people remain missing.

“Unfortunately, there are dead people inside some vehicles,” Spain’s transport minister Oscar Puente said.

In the Valencian district of La Torre, nine dead bodies were discovered inside a garage – with a local police officer among the victims.

Luis Sanchez, a welder, said he saved several people from floodwaters rushing through the V-31 motorway south of Valencia city.

“I saw bodies floating past. I called out but nothing,” Mr Sanchez said.

“The firefighters took the elderly first, when they could get in. I am from nearby so I tried to help and rescue people. People were crying all over, they were trapped.”

Satellite images from NASA show how severe flooding has impacted Valencia and its surrounding towns.

The images, captured on 30 October, show large areas to the south of the city covered in floodwater.

The Turia river, which runs through the city, can be seen at a much higher level.

The Pobles del Sud, a large lake nearby, overflowed. Much of the area surrounding the lake was covered in floodwater.

The worst of the destruction was concentrated in Paiporta, a municipality next to Valencia city, where 62 people have been reported dead.

Mayor Maribel Albalat told national broadcaster RTVE: “We found a lot of elderly people in the town centre. There were also a lot of people who came to get their cars out of their garages… it was a real trap.”

What has caused the devastation?

The flooding events in Spain have been hard to witness. But the rainfall there could never have been anything but devastating.

Chiva, located just to the west of Valencia, received 491mm of rain in an eight-hour window.

Some 100-200mm fell in surrounding areas with the accumulation of running water producing apocalyptic scenes.

In addition there have been over 20,000 lightning strikes.

Whilst the rainfall totals are astounding in themselves, this part of the world is simply not accustomed to huge quantities of water falling from the sky.

In an average year, Spain would expect somewhere between 50 and 100 mm of rain throughout the entire month of October but Valencia and Andalusia would expect far less – just 60–70mm.

So how did this happen? It’s attributable to a DANA, a “depresion aislada en niveles altos” or a “cut-off low”.

This is a low pressure system which becomes slow moving or stationary, blocked by high pressure elsewhere, which can only keep shedding its rain over the same area for long periods of time.

These systems are not that unusual. They occur when cool air from the north is drawn across the Mediterranean in late summer and autumn when the waters are war. The temperature differential enhances storms and rainfall totals.

But whilst not uncommon, this one was certainly extreme.

And it hasn’t gone yet. This same system has continued to bring further heavy rain and thunderstorms today, but it has now moved a little further north and east, heading toward the French border and currently remaining to the west of Barcelona.

The rain and thunderstorms are likely to continue for a few days yet with the Tarragona and Castellon regions still under an amber warning while a yellow warning remains in force for both eastern and western Spain.

Spanish Prime Minister Pedro Sanchez said on Thursday morning that Valencia had been declared a disaster zone and that the priority was to find victims and missing people.

He also urged those affected to stay at home as more torrential rain was forecast.

“The most important thing is that I know Spanish people are aware that this phenomenon has not finished,” he said.

Sky News’ Europe correspondent Adam Parsons, reporting from Valencia, said the devastation suffered in the region is “enormous”.

“What we’re witnessing now are the locals here who are waking up and seeing what’s happened to their town and what has happened is something almost apocalyptic,” he said.

A nearby shop was left “absolutely wrecked” and looked like a “bomb has gone off in there”, he added.

Three days of mourning has been declared in Spain, beginning on Thursday.

Spain’s Mediterranean coast is used to autumn storms that can cause flooding, but this was the most powerful flash flood event in recent memory, and scientists have linked its strength to climate change.

World

‘No one came to rescue us’: In this destroyed Spanish town, people are angry

Published

8 hours ago

November 1, 2024

admin

'No one came to rescue us': In this destroyed Spanish town, people are angry

In the Spanish town of Algemesi, people are angry.

The suburb of Raval was one of the worst hit by flash flooding but residents feel abandoned.

At least 158 people have been killed in the disaster in eastern Spain – with the worst of the flooding concentrated around the Valencia region.

Spain floods latest: Looting breaks out as flood deaths surpass 150

“When the alert came the water was already two metres high,” Carolina shouts from her balcony. “There were no police, firefighters or the mayor. No one came to rescue us.”

The distress is echoed street after street.

Carmen puts her head in her hands and weeps.

“They have lost everything,” she says, pointing at her neighbours’ houses.

Every home is in ruins and their owners are heartbroken.

Dolores shows us inside her house. She says the flood was up to the ceiling but because no help came, they have had to hammer holes in the walls to clear the water.

“I feel awful. I’m terrified and very afraid. My husband is sick – we need more help,” she says.

The level of destruction is immense.

On the street, we meet Noel with his children. The youngest toddler barefoot in the mud.

Yesterday, Noel and his wife had nothing to eat. He feels helpless.

“Right now, there are people who are trapped. The mud is up to their waists, so they can’t open their doors,” he says.

“I live on a high floor so I didn’t have problems with the flooding in my home, but I don’t have water, light, or food.”

There’s a growing feeling of desperation in this suburb.

At one point, someone shouts “food!” and people rush to grab what they can from a nearby shop.

It’s not clear if they have been let in by the owner or are looting.

The devastation is so great and at a time when people are at their most in need, they feel frustrated and alone.

In a nearby shelter we meet people from Algemesi who have been made homeless by the flood.

Carol says she has never felt so hopeless.

“There was a tree trunk that came into the front of my house. There are no walls, no ceiling. I don’t have anything. There’s nothing left,” she explains, beginning to cry.

For many, the initial trauma of this natural disaster has been compounded in the aftermath by a feeling of loss and loneliness.

World

Ukraine war: Thousands of North Korean troops near Ukraine border will enter battle ‘within days’, says Blinken

Published

8 hours ago

November 1, 2024

admin

Ukraine war: Thousands of North Korean troops near Ukraine border will enter battle 'within days', says Blinken

Thousands of North Korean soldiers are now positioned near Ukraine’s border and likely to enter combat in the coming days, the US says.

Russian troops have been training them in artillery, drones and “basic infantry operations, including trench clearing”, said US secretary of state Antony Blinken.

He said it strongly indicated they would be used on the front line and would therefore become legitimate targets for Ukraine.

Some 10,000 North Korean troops are in Russia, including up to 8,000 in the Kursk border region, Mr Blinken said.

The troops are wearing Russian uniforms and carrying Russian gear, according to US defence secretary Lloyd Austin.

“We’ve not yet seen these troops deploy into combat against Ukrainian forces, but we would expect that to happen in the
coming days,” Mr Blinken said on Thursday.

America’s top diplomat said the recruitment of troops from North Korea to Russia’s “meat grinder” was a “clear sign of weakness”.

Mr Blinken made the assessment after he and Mr Austin met their South Korean counterparts in Washington DC.

Foreign minister Cho Tae-yul called for the immediate withdrawal of North Korean soldiers from Russia and condemned it “in the strongest possible terms”.

They also all agreed China should do more to rein in North Korea, Mr Blinken said, adding that he’d had a “robust conversation” with Beijing this week.

Mr Austin also announced that – with the US election just days away – America would soon be announcing new security assistance for Ukraine.

The deployment of troops to Russia is down to the close relationship between President Putin and North Korea’s Kim Jong Un.

The leaders last met in June when Mr Putin travelled to North Korea for the first time in 24 years.

A mutual defence pact was agreed during their summit, meaning the countries will help each other if they are attacked.

The US says North Korea has also given munitions to Russia as it continues its grinding effort to take more territory in Ukraine’s east.

The White House published images earlier this month which it said showed 1,000 containers of equipment being sent to Russia by rail.

There are concerns about what military aid Russia will now provide in exchange.

North Korea test-fired an an intercontinental ballistic missile for the first time in almost a year on Thursday and there is speculation Russia may have provided technological help.

In a statement, the US, Japan and South Korea condemned the launch as a “flagrant violation” of UN resolutions.

“We strongly urge (North Korea) to immediately cease its series of provocative and destabilising actions that threaten peace and security on the Korean Peninsula and beyond,” they said.