The 2017 general election will be fought at a time when voters are getting poorer. That was the big message from the latest official figures for the cost of living showing that the annual inflation rate has reached 2.7%.
Earnings growth is running at around 2%, which means that living standards are going down. And there is worse to come. The gap between price increases and wage rises is going to get wider over the coming months.
Views differ on just how bad things are going to get, but it is unlikely the squeeze on living standards will be as great as that five years ago, when inflation topped 5% on the back of oil prices close to $150 a barrel.
This time, there is reason to believe the peak will be lower. Part of the increase in the cost of living in April was due to one-off factors: the timing of Easter pushed up air fares, while budget tax changes added more to inflation this year than in 2016.
What’s more, the recent rise in the value of the pound – if sustained – will help limit future price increases by making imports a bit cheaper. The separate Office for National Statistics data for the fuel and raw material costs paid by industry suggests that the peak impact from the weakness of sterling and rising global oil prices occurred at the turn of the year.
None of which will be of much comfort to those whose real incomes are falling. Ultra-low inflation in 2015 and the first half of 2016 resulted in two good years for living standards but these now look like the exception rather than the rule. The last decade has been the worst for real wage growth since the Napoleonic wars.
As Torsten Bell, the director of the Resolution Foundation thinktank has noted, pay squeezes at election time have traditionally not been good news for incumbent governments. The last prime minister to go to the country when living standards were falling was Gordon Brown, and things didn’t turn out well for him.
The opinion polls suggest it will be a different story for Theresa May. But if she wins, she will do so without the help of a feelgood factor.
