13/08/2008
Inflation UK 08: Driving the wedge of inequality between the classes
How price rises are distributed in favour of the well-off and against the interests of the poor.
Up until the start of 2008, inflation was not only low by historical standards but was also regarded as uniformly low in how it was experienced across all wealth levels. The basket of goods and services bought by the less wealthy seemed as equally inflation proof as the basket bought by middle and higher-income families.
The figures released today continue to show inflation slipping further out of the once tight grip of the regulators. Prices are also rising far less equitably than before. While inflation in 2008 is now clearly higher than in previous years, the basket of goods and services bought by lower income households have seen the largest leaps in price.
The personal inflation experienced by lower income households is higher than that experienced by wealthier households because those things that are increasing in price most substantially take a larger share of the purchasing of people on low incomes.
The high inflation of 2008 has had greatest effect on the prices of transport, food and housing and utilities services. For the poorest households, these services combined account for more than half of all purchases – a much larger share than for wealthier households.
So the total price of purchases made by low-income households is increasing much faster than the total price of purchases made by households on higher incomes.
This is causing a marked change in the purchasing priorities of the mass market – households on lower-middle and middle incomes. Until recently, their ‘basket’ of goods and services had been steadily becoming more similar to a wealthy household’s ‘basket’. But the sharp rise in prices of essentials such as food, housing and fuel bills is returning the ‘basket’ of these middle-income households to one dominated by essentials – the spending priorities of middle-income consumers will increasingly be aligned with the spending priorities of the less wealthy, rather than the priorities of the rich.
Commenting on today’s new figures, Tim Yates, Head of Quantitative Analysis at the Future Foundation said:
"That inflation is rising is far from being the full story. It is crucial to keep measuring just how its effects are being spread across different types of household and therefore just how those effects are re-shaping some of the big social and political issues of our time - such as income- and opportunity-distribution, wealth inequality, class mobility…"
"Our analysis shows a differential impact on lower- and middle-income families which will inevitably leave them ever more acutely sensitive in so many markets and ever more ready to restrict their spending in many more. In most of this decade, inflation has been little more than an irritant at worst (and sometimes barely noticeable at all) for the shopper, well-heeled and down at heel alike. But the UK is now simply bound to become a more unequal place and one of the principal agents of this change is inflation itself in its current form."