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High inflation hits families in the run up to Christmas

£6 a week decline in family spending power compared with the same month a year ago

GENERAL MERCHANDISE

High inflation hits families in the run up to Christmas

£6 a week decline in family spending power compared with the same month a year ago

It is going to be tight this Christmas for many UK families, as the latest Asda Income Tracker has revealed that the average UK family had £6 a week less to spend in November compared to a year ago.  This marks the eleventh month of falling household spending power, with household discretionary income down 3.4 per cent than in November 2009.

The average family had £174 per week to spend in November, down from £180 this time last year.  The continued decline in family spending power in 2010 has been the result of the price of essential goods and services rising faster than net income growth. Reasons for the rise in inflation point towards the depreciation of sterling, rising global commodity prices and the VAT rise in January 2010. There were also signs over the month that the stabilisation of the labour market may have lost some momentum. During the recession, many workers moved to part-time or self employed jobs, so there is still a degree of capacity slack for businesses to soak up before hiring new workers, or feel required to increase wages to retain or attract workers.
 
Inflation rates remain above target, increasing 3.3 per cent in November, from 3.2 percent in October – above the Bank of England’s 2.0 per cent central target. Evidence shows consumer prices are being affected by the increase in soft commodity prices earlier in the year. Many categories and products on the consumer index are showing their highest annual growth rate in several years.
 
The main contributing factor putting downward pressure on family spending power in November was transport, which remained the single most important element of consumer price inflation. According to the AA, the cost of unleaded petrol rose 9.6 per cent between November 2009 and November 2010.
 
The labour market recovery lost some momentum in November, with unemployment rising 7.9 per cent over the three months to October, versus 7.8 per cent the previous quarter and expectations of a fall to 7.7 percent. Claimant count unemployment fell by 1,200 between October and November. Although this is slightly less than expected, it is the second monthly fall in a row. There has been continued evidence of spare capacity in the labour market, with part-time employment up by 3.3 per cent over the three months to October year-on-year, compared with a 0.2 percent decline in full-time employment over the same period.
 
Charles Davis, the economist at Cebr who compiles the report for Asda, said:“Inflation remains stubbornly high, with commodity process putting upward pressure on the cost of living.Meanwhile the labour market recovery is not yet convincing. So for many households growth in income has once again failed to keep up with the rising cost of essentials.”

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