Households were £11 a week worse off last month, a survey revealed today, as rising transport and food costs continued to put spending power under pressure.
The average UK household had £166 a week of discretionary income to spend in July, according to the Asda Income Tracker, which is 6.4% lower than a year earlier.
The consumer prices index (CPI (Berlin: CEJ.BE - news) ) rate of inflation increased to 4.4% in July, from 4.2% in June, as conditions in the labour market worsened, supermarket Asda (NYSE: WMT - news) said.
Family budgets were squeezed as the cost of travelling increased by 16.5% year on year, according to the AA, while food prices remained high despite food price inflation easing marginally.
Andy Clarke, Asda chief executive, said: "The maths is simple - the rising cost of feeding the family, getting around and increasing unemployment add up to the biggest squeeze on families since the last recession."
Average earnings increased marginally faster over the year to July but recruiting conditions remained constrained, Asda said.
The company found customers were half-filling petrol tanks and cutting their own hair instead of visiting the hairdressers to deal with the spending squeeze.
Charles Davis, managing economist at think-tank CEBR, said: "Pressure on household finances continued to mount up in July as the cost of essential spending grows rapidly while wage increases remain slow."
A rise in rail fares was unveiled earlier this month as the July Retail Prices Index rate of inflation is used to determine the cost of regulated fares from the new year.
Rail fares will increase by an average of 8% from January, piling more pressure on commuters' purses.
July's inflation figures from the Office for National Statistics revealed clothing and footwear increased by 3.1% on an annual rate - the highest annual surge since records began in 1997.
Housing, water, electricity, gas and other fuels increased by 4.6% on an annual basis, the highest increase in two years.
British Gas, E.ON, Npower, Scottish Power and Scottish & Southern Electric have all unveiled price hikes in the last few weeks.