Consumer bruised yet again as inflation outstrips wage rises

By DOMINIC JEFF
Published on 16/01/2013 00:00

Hopes for the economic recovery were dealt a blow yesterday with news that inflation continued to outstrip wage growth in December, putting a further squeeze on already hard-pressed consumers.

The Office for National Statistics said the consumer prices index (CPI) was unchanged for the second month running at 2.7 per cent, well above the Bank of England’s core target of 2 per cent.

Colin Edwards, economist at the Centre for Economics and Business Research, said: “This is bad news for UK consumers. While inflation may be steady, consumers’ real wages are falling.

“The latest data show regular pay growing at just 1.7 per cent – it last exceeded consumer price inflation in June 2009 – with total pay including bonus payments faring only marginally better, increasing by 1.8 per cent.

“This persistent erosion of spending power undermines hopes for a consumer-led recovery. With weaknesses in the UK labour market set to constrain pay growth in 2013, we expect another difficult year for consumers.”

Price increases from four of the “big six” energy suppliers which took effect last month offset the effect of lower petrol prices and other transport costs such as airline tickets.

Yesterday’s figures also showed that the retail prices index (RPI), which includes housing costs, rose to 3.1 per cent, up from 3 per cent a month earlier.

Experts warned that both measures were likely to rise.

Howard Archer, economist at IHS Global Insight, said: “It still looks very possible that increased energy tariffs and higher food prices could push consumer price inflation up to 3 per cent early in 2013 and keep it there for a while.”

He said further utility price rises will kick in during January, while bad harvests look likely to push food prices higher.

He added: “We expect consumer price inflation to hover around 3 per cent during the first half of 2013, before falling back later in the year.”

Archer said he still thought Bank of England policy makers would likely choose to buy more gilts this year to aid the ailing economy, despite the fact that it will cause further
inflation.