Effects Of Inflation Are Not Felt Equally By All Households

7th October 2022

Report from The Fraser of Allender Institute.

Not all households are equally affected by rising prices. New ONS data for the UK released in August divides price indices, expenditure shares, and inflation by income quintile, retirement status, whether or not households have children, and residence type.

As many have anticipated, the households that earn the least are feeling the effects of rising prices most keenly, Chart 1.

The first quintile (the lowest-earning 20% of households) faced an effective annual inflation rate of 9.8% in June, compared to 9.0% for the middle quintile and 7.9% for the highest.

Resolution Foundation's forecast estimates that households in the lowest income decile will face inflation of 15% by October, while inflation will be 11% for those in the highest decile.
The difference in price indices across the income distribution are not new, but they have spiked this year. From 2013 to early 2022, the price index for the first quintile was about 2 points higher than for the third quintile. By June 2022, that difference had grown to 3.5 points.

In comparison, the cost-of-living crisis has impacted the highest earners least.

Household spending patterns drive different effective inflation rates across the income distribution. Food, fuel, and housing make up a larger proportion of spending for lower-income households than for higher-income households.

Read the full report HERE