From the TUC

The Unequal Impact of Inflation

11 May 2012, by Guest in Economics

Research we’ve published today shows that over the past year high inflation has hit the poorest much harder than the high earners.

A variety of factors both domestic (such as the hike in VAT) and global (a rising oil price following the Arab Spring) pushed inflation higher in 2011, but as different households spend a  differing proportion of their income on different items, the impact of rising prices has been far from uniform.

This means that as the poorest 10% of households spent a much greater proportion of their income on items such as food and utility bills which were bigger drivers of inflation in 2011, they experienced  inflation rates well above the published headline level.

As the graph above makes clear, since June 2011 the poorest decile of earners have been the hardest hit. By contrast in 2010 it was the higher earners who were most affected by rising prices.

Whereas the poorest 10% of households spent 43% of their income on household utility bills and food, the richest 10% spent just 20%.

It was been widely reported that the UK is going through a squeeze on living standards of historical proportions – the worst since the 1920s according to Sir Mervyn King – but what is less appreciated is how this has affected different family types.

Real wages have been falling for two years and are not expected by the OBR to start growing again until mid 2013. The fact that prices are rising faster than earnings has cost the median worker an annual £727 in real terms since January 2010 – 3.4% of their wages. And that’s before we take account of things such as changes to tax credits.

The Chancellor might like to say ‘we’re all in this together’ but the data is saying something quite different.

We’ll be updating these series throughout the year as the data becomes available.

Methodology: the inflation series were worked by using the Family Resources Survey to see how households spend their income and then comparing the ten expenditure categories to the published breakdowns of CPI. All of the data is available here.

One Response to The Unequal Impact of Inflation

  1. Cost of Living: Time to write a letter to the poorest? | ToUChstone blog: A public policy blog from the TUC
    May 22nd 2012, 11:32 am

    […] As previously noted, the TUC has started tracking the different rates of inflation faced by the poorest 10% of households and the richest 10%. (The post linked to explains the methodology). […]