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Q&A: Understanding salary increases, inflation and the Global Compensation Planning Report

1. What is inflation?

Inflation, in its simplest definition, it is the change in prices for goods and services over a given time period. For more details, consult this article from the IMF.

The Consumer Price Index (CPI) is one measurement of inflation, capturing price changes associated with a specific market basket of goods and services over a specific time period. CPI data can be reported in multiple ways including as average figures or as end of period figures. There are many different sources for CPI data, each with its own methodology.

2. Why do we talk about inflation and salary increases?

Inflation influences the amount of goods and services a person can buy. When operating in a country with high inflation, employers may consider raising their salary increase budgets to take into account the change in their workforce’s purchasing power.

Mercer’s Global Compensation Planning Report (GCPR)  provides salary increase data for over 120 countries. To represent the economic environment in which salary increases are provided, key economic indicators including country inflation data are also included. GCPR sources inflation data from the International Monetary Fund (IMF), World Economic Outlook (WEO) Database that releases data in April and October of each year. For full explanation of IMF’s WEO Database, please consult IMF FAQs.

3. How does the Global Compensation Planning Report (GCPR) present inflation?

Inflation has been consistently provided in GCPR for over 25 years, sourced the World Economic Outlook Database. Mercer does not manipulate or calculate inflation data.

The inflation rate reported in GCPR is the percent change of average consumer prices for a 12-month period. The average is calculated by adding together the month-to-month change in the Consumer Price Index for a 12-month period and dividing by 12-months. This figure takes into consideration seasonal variations, whereas year-over-year end of period inflation only takes into account prices at one point of time (e.g., prices in December 2020 compared with prices in December 2021).

In the January edition, GCPR releases new salary increase data, the core element of the publication. However, because the IMF source for economic indicator data releases in April, the inflation data in GCPR remains an estimate until the GCPR April edition is released. When inflation is low and/or stable, this lag is less evident.

As provided by the IMF, GCPR reports actual, estimated and forecast inflation data.

Why are GCPR’s inflation figures different from other reported sources?

The time period is very important when comparing inflation data. In the current case, because GCPR’s inflation data for 2021 is an estimate and not yet an actual, there may be a discrepancy when it is compared to a full year actual data report in various countries.

Since 2021 is over, why is the 2021 figure still estimated and not an actual?   

The full year 2021 data is not available from the IMF source in the January release of GCPR.

What is the difference between an estimate and a forecast?

Estimates deal with present, past and future situations, forecasts deal only with the future.

Are there other inflation data sources I can reference until the IMF data is available?

To ensure consistency and continuity, GCPR will continue to use the IMF World Economic Outlook Database as the main source for inflation data. Other sources such as OECD Inflation Data and World Bank Inflation Data exist, however, as a general rule, databases should not be compared with out due diligence to ensure all comparison variables are the same.

5. Do the salary increases reported in GCPR include inflation?

GCPR salary increase data is primarily collected through Mercer’s Salary Movement Snapshot (SMS) survey, conducted on a quarterly basis. For some markets, other sources are available and noted in the source section of the publication.

In SMS, salary increases refer to the annual percentage increase in base salary. Because some employers include inflation in their annual salary increase budget, the figures reported may or may not include inflation in the submitted data. Promotional or special increases are not included.  GCPR does not currently capture off-cycle increases.

6. How are companies handling salary increase budgets due to rising inflation?

Mercer conducted a 2-question pulse survey between January 11–28, capturing responses from over 2,500 companies around the world. The majority of companies are not adjusting their 2022 salary increase budgets due to increasing market inflation, nor are they planning to implement more frequent off-cycle salary increases in 2022.

For specific global results consult: Inflation Pulse: Global

Make sure to sign-up to receive survey alert notifications, and visit our Survey results from around Mercer page for additional data cuts from the pulse survey.

For questions, contact Mercer Talent All Access Team

As at February 2022

Disclaimer: Mercer does not capture nor analyze inflation data. Inflation economic indicator data reported in Mercer’s Talent All Access global publications are sourced from the International Monetary Fund (IMF).