Households poorer by £60 a month

High inflation and weak wage growth means family spending power fell by £14 a week in May, according to Asda.

Households are about £60 a month worse off than they were a year ago as rising inflation puts the squeeze on household budgets, latest figures show.

Family spending power fell by £14 a week in May, according to the Asda income tracker, a record low since the supermarket started publishing the data in January 2007.

The figures show that the average family had just £165 a week to spend in May, 8% lower than this time last year due to higher food bills and soaring transport costs. Staple foods have risen in price by 40% over the past 12 months, while the cost of getting around by car and public transport is 8% higher than a year ago.

The report indicates that while the UK economy continues to gradually recover, consumers remain under significant financial pressure as wage growth fails to keep pace with the rising cost of living.

Consumer price inflation was at 4.5% in May, unchanged from the 32-month high seen in April and more than double the current average earnings growth. Whilst the latest labour market data shows a slight fall in unemployment, it also highlights earnings growth remaining at 2%.

Asda calculates family spending power as the amount remaining after the average UK household has been taxed and has paid for necessities such as mortgage or rent, gas and electricity, food, drink and transport.

Transport costs were again a big contributor to the headline rate of inflation in May. The cost of getting around is now 8% higher than a year ago – driven mainly by fuel and oil rising 13.7% over the year, and air fares increasing by 13.8%. Recent AA data showed that unleaded petrol prices are 12.7% higher in May 2011 than in the same month a year ago.

Drinkers and smokers have also been penalised as alcohol and tobacco prices went up by 9.8% over the year to May 2011 – the highest inflation rate of all product categories and the fastest year-on-year increase since March 1992.

The analysis has been produced for Asda by the Centre for Economics and Business Research, an independent economics and business research consultancy.

Managing economist Charles Davis said: "Pressure continued to mount on household finances in May as the rapidly increasing price of transport and food pushed the cost of living even higher, and the price of alcohol and tobacco rose at the fastest rate since 1992.

"The Asda income tracker shows discretionary income is under further pressure as annual earnings growth remains historically weak – under half the rate of inflation. The current picture of low wage increases and rapid inflation is likely to persist for the rest of the year, pointing to an extended squeeze on real disposable income."

Source : Rebecca Smithers - The Guardian.co.uk
www.guardian.co.uk/money/2011/jun/21/households-poorer-rising-inflation