Belfast Telegraph

Saturday 23 August 2014

Cost of sofas are down, but some extra cash in pocket would be great

David Elliott, Business Editor
David Elliott, Business Editor

Sofas, alcohol and DVDs – no, not a checklist for what many consider a good night in but the products which have been responsible for last month's dip in inflation.

News that the annual rate of price rises has fallen below the much-vaunted 2% level couldn't have come at a better time for the central bank.

Bank of England governor Mark Carney has been reeling from a befuddled forward guidance policy over the last few weeks but has at last got something to cheer about.

While he's been busy coming up with new triggers to tell him when to pull the interest rate boost button, he has managed to bring inflation down to within a hair's breadth of where it should be – good news for all of us.

As employees the growing pressure on our disposable income should ease slightly while for employers the pressure to hikes wages eases slightly.

And for the central bank, it's going to be cock-a-hoop if it manages to keep inflation low and grow the economy in the coming months.

It's this kind of environment which provides the tinder to fuel the embers of economic recovery and transform it into roaring boom times. The good news is that economic forecasts – for what they're worth – suggest we're going to enjoy this sunnier economic weather for some months but there is a lot of lost ground to make up.

Earnings growth has at best reached around 1% in the last year or so, a figure which is probably a lot less in Northern Ireland.

With inflation at 2%, that means we're still taking a pay cut in real terms and will have less to spend at the end of the month.

What we need in the coming months is for the economy to grow, companies to boost wages and narrow that gap so we make up for the circa 17% inflation hike which has decimated the average consumers spending power over the last few years.

Cheaper sofas are welcome but not as much as a pay rise would be.

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