Biggest ever drop in family spending power as prices increase twice as fast as income
Asda’s Income Tracker shows inflation has reduced disposable spending by £14 a week
- £14 a week fall in family spending power compared to the same month last year – the largest decline on record
- Decline equates to a £61 a month drop
- High inflation continues to put disposable income under significant pressure
- Average UK household had £165 a week of discretionary income in May 2011, 8.0 per cent lower than a year earlier
The latest Asda Income Tracker has revealed that family spending power fell by £14 per week in May 2011, a record low since records began in January 2007. The average family had £165 per week to spend in May – 8.0 per cent down from this time last year.
Consumer price inflation remained at 4.5 per cent in May, unchanged from the thirty-two month high seen in April – and over double the current average earnings growth. Whilst the latest labour market data shows a slight fall in unemployment, it also highlights earnings growth remains under half the rate of inflation.
The report indicates that while the UK economy continues to gradually recover, consumers remain under significant financial pressure as growth in income fails to keep pace with the rising cost of living. This was compounded by earnings growth falling back again over the three months to April 2011 to 2.0 per cent, compared with an average growth of 4.0 per cent for the years 2001 to 2008 inclusive.
Continuing the tough outlook the rising costs of basics continue to put pressure on family budgets. Transport costs were again the largest contributor to the headline rate of inflation in May. The cost of getting around is now 8 per cent higher than a year ago –driven mainly by fuels and lubricant rising 13.7 per cent over the year, and air fares increasing by 13.8 per cent over the same period. In fact, recent AA data showed that unleaded petrol prices are some 12.7 per cent higher in May 2011 than in the same month a year ago.
Alcoholic beverage and tobacco prices grew by 9.8 per cent over the year to May 2011, the highest inflation rate of all product categories and the fastest year-on-year increase since March 1992.
Andy Clarke, Asda President and CEO, said:
“The true cost of living is now beginning to take its toll. Inflation is rising twice the rate of earnings, petrol prices are at a record high and utilities bills are only getting steeper – all adding up to a £14 a week hole in people’s pockets.
“The combined effect is creating a perfect storm for customers trying to make ends meet.”
Charles Davis Managing Economist, Cebr comments:
“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.”