Essential item price rises hit family spending power

A report has warned that rising prices in essential items such as clothing and fuel are starting to erode growth in disposable incomes.

The Centre for Economics and Business Research (Cebr) released the research in the wake of a big leap in inflation , to an annual rate of 1%, and other official figures showing the slowest pace of earnings growth since 2015.

While the Office for National Statistics suggested there was little to link rising prices in August to the decline in sterling's value since the vote to leave the EU, the Cebr said the influence of the falling pound was now clearer.

In its research for September's Asda Income Tracker, the organisation pointed to a 1.4% increase in fuel costs.

It blamed the rise on UK forecourts on dollar-priced oil - with a weaker pound making petrol and diesel more expensive.

Essential item inflation rose 0.4% overall in September, the Cebr said, also driven by a rise in the cost of clothing and footwear, housing and utility bills.

It meant that growth in families' spending power had fallen to a single digit, £9, for the first time in almost two years, it said, with UK families having a disposable income of £201 last month.

The supermarket price war and weak commodity costs have driven down shopping costs for families over the past three years but it has become clear that pressure is growing for wholesalers and retailers to pass on higher import costs as supply deals start to expire and the weak pound looms large.

The public battle between Tesco (Frankfurt: 852647 - news) and Unilever (NYSE: UL - news) , which became known as ' Marmitegate ', demonstrated the extent of that pressure with experts predicting a response on the shop shelves after Christmas.

Cebr economist Kay Neufeld 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."

He added: "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."