Living standards squeeze returns as inflation tops wage rises

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Living standards squeeze returns as inflation tops wage rises

Shrugging off the depressive effect of demonetisation, India's Consumer Price Index (CPI), or retail inflation, during March rose month-on-month at 3.81 per cent, even as factory output in the country contracted by (-) 1.2 per cent in February, official data showed on Wednesday.

The unemployment rate is just 4.7 per cent - the lowest level since 1975 - with 1.56million jobless people in the three months to February, 141,000 fewer compared to the same period a year ago.

Consumer prices last month increased by 2.3pc compared with the same month past year, according to Office for National Statistics data.

The Producer Price Index, which measures costs of goods at the factory gate, rose 7.6 percent, 0.2 percentage points lower than February's 7.8 percent, which was a eight-year record.

The cost of living remains above the Bank of England's two per cent target, putting pressure on the Bank's Monetary Policy Committee (MPC) to hike interest rates beyond 0.25 per cent this year.

Unemployment has decreased by 141,000 since the same period a year earlier to 1.56m, while the number of people classed as economically inactive is also down to 8.88m, 10,000 fewer than for September to November 2016.

"This could be partly due to the supermarket price wars in the United Kingdom over this period which resulted in a downward pressure on food prices".

"Higher inflation will put pressure on real wage growth and household budgets and will likely squeeze consumer spending".

The figures mean that many people's take home pay is going up by less than price increases for essentials like food and clothes.

The rate has been steadily increasing following a period of relatively low inflation in 2015.

Whereas non-food inflation picked-up on the back of the increased cost of services, such as healthcare, pork prices continued to drag on those for foodstuffs.

"It is very unlikely wages will be able to keep pace, leading to a squeeze in the spending power of United Kingdom shoppers".

The largest upward impact came from food and non-alcoholic beverages, climbing 0.4% between February and March after falling 0.6% over the same period in 2016.

"Without government action, another living standards crisis is on the cards". 'With Brexit uncertainty already priced in, however, we would need to see a catastrophic breakdown in the EU27 trade talks for sterling to fall much further from here'. This puts the jobless rate at 4.7%, unchanged from the prior month and in line with estimates, while the employment rate was steady at 74.6%, which is the joint highest since records began.

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