December’s fall in family spending power largest on record
Asda Income Tracker shows cost of living continues to rise above earnings growth.
The first Asda Income Tracker in 2011 has revealed that in December 2010 family spending power fell by £8 per week, the largest fall on record. The decline in family spending power in December 2010 is the largest annual fall since the Asda Income Tracker began and spending power fell in annual terms during every month of 2010.
When the impact of bonus payments is included, family spending power decreased by £9 over the year to December, a fall of 4.5 per cent.
The average family had £172 per week to spend in December, down from £180 this time last year and for 2010 as a whole average weekly household disposable income was £4 below the average level for 2009 at £178, a 2.2 per cent decrease.
The main driver of this downward trend is the disparity between consumer price inflation and sluggish earnings growth.
Gross incomes (excluding bonuses) grew by 2.3 per cent in December 2010 year-on-year, down from 2.6 per cent in November whilst the cost of essential goods and services was 3.9 per cent higher in December 2010 than in December 2009.
There was a sharp 3.7 per cent annual rise on the consumer price index in December, compared to 3.3 per cent in November – above the Bank of England’s 2.0 per cent central target. The increase between the two months was the highest on record. There was also a notable increase in inflation excluding indirect taxes (such as VAT), as measured by the CPIY index. On this measure prices rose by 2.0 per cent in December year-on-year, compared to a 1.6 per cent increase in November.
The main factors putting downward pressure on family spending power in December was the transport sector, which was by far the largest contributor to the headline rate of inflation in December with 6.5 per cent annual growth. According to the AA, the cost of unleaded petrol rose by 12.7 per cent in December 2010 year on year, up from 9.6 per cent in November.
Charles Davis, the economist at Cebr who compiles the report for Asda, said,”As this month’s Asda income tracker shows 2010 was a tough year for the consumer. The cost of essential goods and services rose at a faster pace than average wages. The elevated level of inflation in 2010 was mainly driven by the VAT increase in January 2010 and external factors driving up commodity prices: the return to economic growth across the globe pushing up demand and floods and droughts in China, Pakistan and Russia affecting supply. The sluggish wage growth is a result of the slack in the labour market that built up during the recession.
The picture for 2011 looks set to be equally tough for the consumer. The VAT increase in January 2011 will keep inflation elevated this year, while public sector cuts will start in earnest. As such wage growth will remain modest. This is likely to result in lower levels of disposable income in real terms for families in 2011 compared to 2010.”
*Family spending power is the amount remaining after the average UK household has had taxes subtracted from income and bought its basic items. It is the amount left to spend on leisure and recreation goods and services.
