Households set to suffer through 2012 under high inflation

Tim Wallace
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HOUSEHOLDS are being squeezed increasingly hard by rising prices and low wages, a new report warned today, while economists fear inflation will stay high throughout 2012.

Spending on essentials rose at 6.2 per cent in the year to March – the fastest pace since the Lloyds spending power report began in 2010.

At the same time income growth slowed to 2.4 per cent, its lowest pace in over a year.

Markit’s household finance index also fell into April, registering the most downbeat outlook since December.

The index dipped from 37.8 in March to 37 in April, well below to “no change” mark of 50, as 38 per cent of households reported a drop in their cash available to spend in April while just nine per cent saw an increase.

Meanwhile, analysts at the Centre for Economics and Business Studies (CEBR) warned that inflation is likely to stay above 2.5 per cent throughout 2012, despite the Bank of England’s hopes that it will fall back to or below its two per cent target.

“Inflation used to be driven by labour costs – now it is driven by high and rising demand for oil and other primary commodities from the emerging economies in the Far East,” said CEBR boss Douglas McWilliams.

“We could only opt out of this by pushing up the exchange rate to a level that made the UK even less competitive. So it looks as if inflation above target is a price we may have to pay for some time.”