price increases inflation

Rising inflation has led to the biggest slowdown in spending power for almost two years, according to a new report from Asda.

The latest figures from its Income Tracker reveal that annual spending growth dropped to under £10 for the first time since 2014.

UK families had £201 of discretionary income last month, or £9 (4.7%) more than the same period last year.

It is the first time in 22 months that consumers have not seen double-digit growth in discretionary income.

Asda said the increase in essential item inflation, which rose 0.4% in September - the largest increase since November 2014 - was driven mainly by a rise in essentials such as clothing and footwear, and housing and utility bill costs.

Due to the weakening pound, the price for vehicle fuel also rose 1.4%.

The supermarket giant warned that with the value of sterling expected to remain weak, rising prices for imported goods would continue to contribute to a higher rate of inflation over the coming months.

Food and non-alcoholic drinks have so far resisted the trend, according to the report, which shows prices fell on average by 2.3% year on year - a 0.1% decrease on prices seen in August.

Wage growth and unemployment remained flat over the past month, with wage growth staying slightly ahead of inflation. But the report said if inflation continued to rise at the same rate as predicted, it could eclipse wage growth and leave consumers with less income in their pockets by the middle of 2017.

Scottish families overtook the UK average, with households north of the border boasting an average disposable income of £204 per week.

There was also a more positive outlook for the North East, which experienced the fastest growth in gross income out of all the regions, courtesy of a 3.2% increase over the past quarter.

“As a retailer, it’s encouraging to see that UK families were able to benefit from a decline in food prices during September, especially as inflation and a weakened pound raised the cost of other essential items, said an Asda spokeswoman.

“Consumers are still £9 better off than the same period last year. However, the drop into single-digit spending power growth for the first time in almost two years will cause some concerns for consumers, so we will be watching the trends carefully over the coming months.”

Kay Neufeld, economist at Cebr, said: “Household incomes continue to increase, but rising inflation is starting to take its toll on spending power. The weak pound means that price growth is going to accelerate further in the next months, increasing the cost of the weekly shopping. In September, for the first time in nearly two years, households’ weekly spending power has risen by less than £10. After a long period of unusually low inflation, we can expect to see price increases for many essential items over the next months. For 2017, decreases in spending power cannot be ruled out.”