Consumer Spending Power Continues To Rise But Rising Costs Taking Their Toll – Asda Income Tracker

UK families had £201 in discretionary income to spend in August, a rise of 5.3% in spending power compared to the same period last year, according to the latest figures from the Asda Income Tracker.

The figures mark the 22nd consecutive month of double-digit growth in pound terms, with households benefiting from an extra £10 per week compared to the same period last year.

But whilst the positive figure suggests good news for spending power year on year, the data also shows that the rate of growth has slowed month on month in 2016, with disposable income staying largely flat for the past five months.

While essential item inflation has remained at near-zero levels and Consumer Price Inflation is holding steady at (0.6%), Asda said that rising input costs and slowing wage growth mean that monthly spending power is not growing as quickly as seen previously.

Other factors impacting spending power are increased transport costs – up 0.9% over the month of August and an increase of 0.9% in food prices. Meanwhile, manufacturer costs have climbed at the fastest annual rate in almost five years, suggesting that further inflationary pressure could be around the corner.

The report also suggests that as prices are expected to continue to rise, headline inflation will move towards the Bank of England’s 2% target for 2017.

On the plus side, the report, compiled each month by CEBR, noted that a cut to interest rates helped to offset the rising costs and resulted in a further fall in monthly mortgage payments. And the uncertainty – triggered by the results of the EU referendum – doesn’t appear to have impacted shopper behaviour at the tills.

An Asda spokesperson said: “This month’s report is a mixed one for families. On the one hand it’s encouraging that we continue to see a rise in spending power, courtesy of low levels of essential item inflation, and cuts to interest rates. However, on the other hand, there are some trends beginning to emerge that consumers should be mindful of.

“With inflation predicted to creep up as we head towards 2017 and the potential for a continuation in the rising costs of some essentials, families will be watching their wallets with interest over the coming months.”

Sam Alderson, Economist, Cebr, added: “UK households have continued to help to drive economic activity in the months following the referendum, clearly supported by further robust increases in household spending power.

“However, whilst the initial turbulence has been navigated, improvements in household finances have slowed, a process that could accelerate if rising production costs begin to feed into prices at the tills.”

NAM Implications:
  • Where at: On balance, we are working in a distorted market in that a price war is driving down shelf prices but other ‘normal’ cost-increases via currency related import and overseas spending means a net increase in discretionary income of £201 is exceptional, and producing the insight has to mean a competitive gain for Asda
  • Where headed: Imported ingredient and local labour cost-increases are building pricing pressures in the pipeline that cannot be absorbed by suppliers or retailers, and have to be passed on to cash-strapped consumers…
  • Effect on You: After a tough (price-war) in Q4, expect some easing in resistance to fact-based price increases i.e. any allowed price increase will just cover actual cost increases
  • Action: Any improvement in bottom line performance will require improved efficiencies, portfolio and SKU rationalisation by suppliers, if the retailer does not do it on their behalf…