Business

Inflation 'is higher for the poor than for the rich'

  • 14 June 2011
  • From the section Business
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People on low incomes have suffered higher inflation than those on higher incomes in the past decade, the Institute for Fiscal Studies has said.

The IFS said that the difference had been particularly strong since 2008.

The poorest 20% of households faced an average annual inflation rate of 4.3% between 2008 and 2010, while the richest 20% only had a rate of 2.7%.

People on lower incomes spend more of their money on gas, electricity and food, which have risen sharply.

At the same time, people with higher incomes have benefited more from lower mortgage rates.

Pensioners have experienced higher inflation than non-pensioners and pensioners relying on state benefits have been hit particularly hard.

Inflation inequality means, "that poorer households will have fared worse over the period of the recession than poverty and inequality statistics that don't account for these differential inflation rates would suggest," according to Peter Levell from the IFS.

In 2009, the poorest 20% of households spent 9.4% of their incomes on household fuel, while the richest 20% spent only 4.4%.

That year, electricity prices rose 4.6% and gas prices rose 13.4%, according to the Office for National Statistics, and those rises would have had a bigger effect on households spending a higher proportion of their income on fuel.

The Retail Prices Index covering all items for that year was 2.4%.

The highest 20% are those with annual incomes above £25,012 for a single person or £37,336 for a couple.

The lowest 20% of households are those with an annual income below £8,736 for a single person or £13,052 for a couple.

Market research company TNS said it was clear that people, particularly on low to middle incomes, were changing their shopping habits as a result of rising prices.

"We are seeing people move to the deep discounters - Aldi and Netto - who are doing very well," said Dr Michelle Harrison from TNS.

"We are seeing more 'small-basket shops', as people are trying trying to avoid waste.

"And people are changing brands, being very savvy about the kind of products they are buying. They are not necessarily buying the more expensive brands," she added.

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