Nice theory -- shame about the surge in the cost of fuel, food and other things people buy before they see what is left to save or spend on life's luxuries, their discretionary budget.

A vendor at Paris's Bastille market provided a striking example of one luxury moving further out of reach of shoppers a few weeks ago when he raised the price for specialty Bresse chickens by 25 percent, to 20 euros or roughly US$30 each.

But apart from the scale of the rise, what the vendor did is no different from what companies are doing across Europe with necessities and luxuries alike -- making consumers pay the bill for soaring raw materials costs, in turn caused by the rising price of industrial and agricultural commodities worldwide.

Companies such as Nestle and Unilever, whose branded produce goes into the kitchens, bathrooms and cleaning-cupboards of most homes in Europe, raised prices last year to offset surges in raw material costs, and the same tactics apply for the rest of this year, according to recent declarations from the firms.

How long they can avoid taking some of the hit themselves at the profit-line is anybody's guess, although Nestle hopes the pressure will start to ease later this year. So do politicians although some fear wage demands might spiral out of control and further fuel inflation, as happened in the 1970s.

Belgian supermarket group Delhaize says it is beefing up its offer of own-label goods to cater to budget-conscious customers as competition intensifies with no-frills hard-discounters.

Carrefour, the world's second-biggest hypermarket group by stock market value after Wal-Mart, says many of the price rises it sees are for things other than the foodstuffs that tend to dominate the headlines.

In any case, rising everyday costs are squeezing households and compromising the consumer spending revival economists have been predicting for some time now.

Disposable incomes will shrink this year for the first time in a decade in the euro zone, economists at UBS bank predict.

Germany, Italy and Spain could be the worst-hit, according to UBS chief European economist Stephane Deo and colleagues.

Indeed, monthly retail sale surveys, although not considered the final word, reveal tentative signs of damage already.

Retail sales dropped for a second month running in March in the euro zone, according to the EU statistics office, Eurostat. They also slumped in Britain in April, according to the Confederation of British Industry.

Marco Annunziata, economist at UniCredit bank, said what is more troubling is the price rises go hand-in-hand with slowdowns in housing markets in some countries and the crisis in financial markets that is making banks reluctant to extend credit.

"In Europe, we had just reached the stage where we expected consumers to take up the baton and replace exports as the engine of growth," he said.

"Instead, consumers have been hit first by a depressing daily flow of news about the (markets) crisis, then by lower equity and house prices, and finally by the incessant rise in food and fuel price."

European economic growth, or gross domestic product, staged a significant acceleration in 2006, when GDP in the euro zone rose 2.8 percent, followed by 2.6 percent in 2007, way more than the average of the preceding five years.

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