Family Budgets Under Great Pressure
As price inflation moves higher, with the latest figure confirmed at 3.8%, there are real concerns that family budgets are being stretched to the limit. As price inflation rises we are seeing wage increases falling with the latest report showing wage inflation at 3.79%, the first time in 13 years that price inflation is higher than wage inflation. So what does this all mean?
This means that in the real world the value of the pound in your pocket is falling and with wage settlements set to come under substantial pressure and inflation forecast to move towards 5%, the problem will only get worse. When inflation was around the 2% level, the government's preferred target, wage inflation was substantially higher meaning that the buying power of family budgets was increasing month by month.
When you consider that bread, cheese and milk are currently being sold at prices 25% higher than just 12 months ago it is easy to see where the problems are. However, turning around the situation will take time, see consumers feel real financial pain and leave many in substantial debt when the economy finally turns around. The larger the difference between wage inflation and price inflation, the worse the situation will become.
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