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'Challenging' year on way as inflation puts pressure on incomes

By John Mulgrew

This year will become a "challenging" one for consumers who face the erosion of their disposable income after inflation reached a four-year high, it's been claimed.

Inflation hit its highest level in May since June 2013, with rising living costs ratcheting up the pressure on household finances in the wake of the Brexit vote.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation reached 2.9% last month, up from 2.7% in April and the highest level since June 2013.

Economists had been expecting inflation to remain at 2.7%.

And 2017 is, as a result, "shaping up to be a tough year for the consumer with price rises across the board and particularly on essentials such as food and energy bills", according to Ulster Bank chief economist Richard Ramsey.

"The squeeze on household finances is set to intensify further.

He said a rise in the index faster than average earnings means "that pay growth is falling in real terms".

"This will erode disposable incomes and put pressure on consumer-sensitive sectors," he said.

The figures lay bare the squeeze on household finances as inflation outstrips wages, with CPI having been sent soaring as the Brexit-hit pound has pushed up the price of imported goods and energy.

Dr Esmond Birnie of Ulster University said: "To the extent businesses do not pass on higher costs their margins are squeezed. To the extent they do pass on higher costs into higher prices then we are moving back into a position where living standards decline in real terms, which will make it much harder to sustain recovery and economic growth".

And Conor Lambe, economist with Danske Bank, said with inflation at a relatively high rate, "consumers' purchasing power is being squeezed and downward pressure is being exerted on consumer spending growth".

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