Watching wages

The odds of a rate rise next week appear to have shortened considerably after yesterday’s inflation figures, which showed the price pressures are once again building in the economy.

While the strong dollar has helped keep import prices down the for the last 12 months, rising production costs and domestic demand is likely to mean prices keep rising.

That means we could see more interest rates than we were otherwise expecting.

It also means that entrepreneurs and executives can expect to see employees start to push for wages increases – probably when you sit down for this year’s upcoming round of performance reviews.

The PricewaterhouseCooper’s Business Barometer survey highlighted how quickly labour pressures are building for entrepreneurs. Not only will skilled people be extremely hard to find over the next 12 to 18 months, but respondents expect wages bills will increase by 7-8%.

After a period in which many businesses have cut costs hard to maintain profitability, coping with a 7-8% increase in salaries – or more if you need to hang on to a particularly great staff member – might not be easy.

Here are some of the questions entrepreneurs will be asking themselves:

• What will it do to your costs? Are there other ways to tighten your belt?
• How will your profitability be affected? What can you do to boost sales and grow revenue?
• What sort of incentive structure do you have in place to get the best value for your wage bill? If you’ve got to spend more on labour costs, are you completely happy with the make-up of your team?
• What other non-cash benefits can you offer staff? Could it be more career development opportunities or better training? Or different working arrangements?

It’s time to start planning right now for this inevitable wage hike.