Record squeeze on family finances
Family spending power is at its lowest level in a year after inflation fell 1.1% in March, according to a new study.
This yearly fall means families now have £113 less to spend on non-essential items, the Lloyds TSB Spending Power Report said.
Finances are also being squeezed because spending on essentials is now rising at its fastest rate since records began in June 2010.
It shot up by 6.2% in the past 12 months, mainly because of a hike in the price of food and drink and gas and electricity. A 12% hike in petrol prices during March after panic buying because of the threat of a fuel strike also contributed.
Families are also being hit as income growth has slowed to its lowest rate for a year and is now running below inflation at 2.4%.
Inflation edged up to 3.5% in March on a monthly basis and despite falling for the previous five months the research indicates that this has not yet filtered through to consumers' pockets.
"Contrary to expectations at the start of the year, the squeeze on consumers is not yet beginning to ease," says Patrick Foley, chief economist at Lloyds TSB.
"The pace of economic recovery is thus likely to remain very weak over the next few months at least, with subsequent improvement dependent on a stabilisation in living costs and impetus for growth from outside the consumer sector, particularly exports," he adds.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).