Inflation slows down growth in family discretionary income

The growth in family discretionary income is continuing to slow as inflation hit a two-year high of 1.2% last month, a report has found.

Families still enjoyed £202 of discretionary income last month - £9 or 4.5% more than the same time last year - but this was the third consecutive month of single-digit spending-power growth, according to Asda's Income Tracker.

The rising cost of fuel, up 7.4% year-on-year, was once again one of the main contributors to the slowing growth.

Inflation was up 0.3 percentage points compared to October, attributed to clothing and fuel costs along with various service increases including utilities, restaurant visits and hotel stays.

However, air fares bucked the trend, meaning Christmas flights will be cheaper this year than in 2015 despite higher fuel prices.

Deflation in the price of food, down 2%, and mortgage interest repayments, down 6%, also helped counter the inflated fuel prices, causing the cost of living to remain relatively flat.

The report also reveals that households of under-30s had the least discretionary income out of any age group, well below the average at £154, and suggests these families spend a relatively large share of their money on essentials, substantially education.

Those with the main earner aged 50 to 64 had the highest weekly discretionary household income at £266.

An Asda spokeswoman said: "With the Christmas period upon us, it's encouraging to see that families are still seeing growth in their spending power each month.

"However with inflation on the rise, fuel prices increasing and a decline in the employment rate this month, there are some warning signs to watch in the new year."

Economist Kay Neufeld, of the Centre for Economics and Business Research, said: "After three months of falling growth rates there is no doubt that households' discretionary income growth is on a downward trajectory.

"Households' weekly spending power is still increasing but this might not be the case in 2017. The greatest danger stems from rising inflation paired with a flailing labour market.

"While wage growth has accelerated in the latest readings, employment growth has slowed and the claimant count is rising. An economic slowdown in 2017 could put additional pressure on the labour market."