Real wage levels are continuing to fall, as wage growth fails to keep pace with inflation, adding to the financial stress of many households.
Although wage growth is positive for workers (5.5% average annual pay growth), price increases are outstripping wages, resulting in a decline in the value of pay.
The chart below reveals that once we adjust for the impact of RPI inflation, the broadest measure of household inflation, workers are now 6.5% worse off than a year ago.
This is a record contraction in household incomes and further contractions may be expected as interest rate changes begin to impact rents and mortgage payments.
Click chart to enlarge
Declining household incomes are driving distinct changes to shopper behaviours. Recent IGD consumer research (see here) revealed that 75% have reined-in their spending in the last 2-3 months and 67% plan to cut back their spending further to absorb the increase in the energy prices.
This was before the government announced the new Energy Price Guarantee which will limit the average annual household energy bill to £2,500 for two years (see here). This aid will be helpful but, despite the Guarantee average energy bill over the Autumn will still be about twice as high as last year.
In our latest Viewpoint Report: Economic woes worsen (fast), we explore the impact falling household incomes will have on the food and consumer goods industry.
Many businesses have made significant investment in wages in recent months, but maintaining real pay at a time of surging inflation will be challenging.
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