Prices in the shops are still creeping up, largely as a result of the falling the value of the pound, while the growth of take-home pay is faltering as bonuses are slashed, writes Nevill Boyd Maunsell.
The impact on the buying power of many households, though, is being supported by sharp fall in the interest on variable rate mortgages.
Shop prices rose by 0.4 per cent last month, the British Retail Consortium reported yesterday. Contrary to the recent trend those for non-food goods rose by 0.5 per cent, while food prices were up only 0.1 per cent.
That still left food prices 9.0 per cent higher than in March last year, while non-food items were 1.5 per cent cheaper. Overall year-on-year shop price inflation rose to 2.0 per cent from 1.9 per cent in February, the fourth month running that it has risen.
Meantime, take-home pay rose by 2.0 per cent over the year to March, according to the wage processor VocaLink, exactly matching inflation in the shops.
This was the lowest annual increase since VocaLink began this survey in 2004 and down sharply from 2.4 per cent in February and 2.7 per cent in January. VocaLink blamed the fall on bonus cuts and loss of workers’ wage bargaining power. Manufacturing pay was particularly hard hit rising by only 1.2 per cent as many employers froze wages and shed staff.
Among providers of services, pay growth fell to 2.4 per cent, down from 2.9 per cent in February.
“With further steep falls in business an household expenditure expected and pay growth in continued decline, long-term deflation is now a real concern,” said Douglas McWilliams, chief executive of the economics consultancy CEBR.
Howard Archer. UK economist at IHS Global Insight, commented: “It seem inevitable that slowing wage growth, along with soaring unemployment, will increasingly weigh down on consumer spending over the coming months”.
Mike Watkins, at Nielsen, which compiles the shop price index with the BRC, said “Currency change continues to stoke up shop prices for food and, in recent weeks, for non-food.
“While demand for food and drink is relatively strong with sales in the first quarter up at the grocery multiples, this was only achieved by unprecedented levels of promotions.
“In non-food retailing, shoppers remain much more cautious and there is once again significant discounting in the run-up to Easter.”