The figures this week show just how the squeeze on peopleâ€™s incomes is intensifying. As readers of this blog will know. wages remain under strict control. Real wages (Wage increases after allowing for the increase in the Retail price Index) are now falling by 1% a year â€“ they usually go up by around 2.5% a year. The RPI itself underestimates the cost increases of many family budgets. Food prices are now rising by 1.5% a year more than the RPI, and energy prices, taxes, government charges and petrol prices are soaring.
The squeeze will get worse in the months ahead. The government is determined not to absorb any of the pressure, so it all falls on the private sector. Companies are being more successful at pushing through price increases, so the squeeze within the private sector falls mainly on working people trying to live from their wages and salaries.
The squeeze partly stems from the government overdoing the costs and spending of the public sector. We are now reaching the days of reckoning, so taxes go up and consumers suffer. It partly stems from the ability of overseas suppliers to charge more for everything from oil to manufactured goods. The Chinese now expect better prices for what they make, as they have plenty of demand at home as well. Opec and the Russians are able to sell their oil for more, because Asia has demanded more oil. Governments worldwide â€“ including the UK one â€“ have see higher taxes on oil and oil products as an easy way out of their own overspending. That has made the position worse.
The continuing squeeze means two things. It means the inflation will not get out of control. It means the political outlook remains poor for Mr Brown, the main architect of the UK squeeze thanks to his tax and waste policy.