RETAIL sales growth slowed substantially this month, with consumers increasingly squeezed by surging petrol prices, weak wage growth and spiralling price inflation.
Elevated oil prices, driven up in recent weeks by the crisis in the Middle East and surging Chinese demand, are set to drive petrol close to £1.40 a litre, some observers said.
The rise imposes more pressures on the UK, where consumer price inflation is already double the Bank of England’s two per cent target, and expected to approach five per cent in the coming months. It is already higher than that on other measures.
Brent crude briefly hit $119 (£74) a barrel yesterday, before falling back after the Saudis pledged to increase supplies. Some analysts argue every extra $10 a barrel knocks 0.25 per cent off global GDP. Oil at $120 a barrel may add 0.48 per cent to retail price index inflation in the UK, Fathom Consulting said.
Rising petrol prices could be compounded by a 5p hike in petrol duty, due in April. Fuel duty is currently 58.94p a litre. Petrol stations are reporting that more consumers are limiting their purchases to a set sum of money, rather than filling their tanks, a sign of distress.
More than three out of four – 77 per cent – of retailers are reporting rising prices, according to a survey by the Confederation of British Industry (CBI) yesterday. With only four per cent reporting lower prices, the survey’s inflation index soared upwards by 28 per cent – its most inflationary score in nearly two decades.
A balance of only six per cent of surveyed retailers reported a rise in sales during the opening two weeks of this month -- 36 per cent saying sales have increased, and 30 per cent saying sales have fallen -- according to the CBI.
“With rising food, oil and other commodity prices and weak wage inflation, the outlook for UK household income growth looks poor,” said Chris Watling of Longview Economics.
“Such a sustained decline in real incomes has not been experienced in the UK since the 1970s,” he added. “The fruits of western money creation are now appearing in terms of consumer price inflation,” Watling said.
A 10 per cent rise in petrol prices would cost US consumers $40bn a year, “a reduction in real incomes of around 0.4 per cent,” Capital Economics said yesterday. “Retail sales are likely to be more challenging over the coming months,” said CBI economist Lai Wah Co. “Prices are set to rise considerably as the VAT increase and the soaring cost of raw materials are passed on to shoppers.”