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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, 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 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. 

Mercer’s Global Compensation Planning Report (GCPR)  provides salary increase data for more than 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 April and October editions, updated inflation data reported by the IMF are published in GCPR Online.

Can GCPR’s inflation figures be different from other reported sources? If so, why?

The time period, as well as how the inflation data is calculated, is very important to consider when comparing inflation data. In the case of GCPR’s inflation data, the 2022 estimated inflation rates represent a percent change of average consumer prices for a 12-month period.

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?

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?

Make sure you sign-up to receive survey alert notifications, and visit our Survey results from around Mercer page for additional information on inflation and other hot topics.

For questions, contact Mercer Talent All Access Team

Last updated: September 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).