Survival vs lifestyle: new data on how inflation impacts vary

Date : 31 January 2022

Inflation is a dominant narrative in early 2022, attracting considerable attention from politicians, the mainstream media and consumers.

Inflation has risen quickly in recent months, with annual inflation for “all items” rising from +0.6% in December 2020 to +5.4% in December 2021, via the CPI method.

This means that inflation has exceeded the forecast made recently by both the Bank of England and the Office for Budget Responsibility.

Key contributions to inflation are coming from essential items motor fuel, domestic energy and – increasingly – food.

This means that the impact of inflation is thought to be greatest for the most vulnerable households, since these households allocate a large proportion of their income to these items.

To explore this, ONS has released a set of data measuring how inflation impacts different types of household (ie: rich vs poor and retired vs non-retired).

Note that this study is based on expenditure data gathered over 2019-2020, so it may not fully reflect expenditure changes occurring since April 2020 (eg: changes due to COVID).

Superficially, both rich and poor households appear to be impacted by inflation in much the same way, as shown in the first chart.

Click chart to enlarge

Source: CPI-consistent inflation rate estimates, ONS, January 2022

However, delving deeper, inflation contributions do differ slightly – as might be expected, the source of inflation pressure is different for affluent and less-affluent households.

Click chart to enlarge

Source: CPI-consistent inflation rate estimates, ONS, January 2022

The least well-off households, represented here by the 2nd income decile are seeing more pressure from food and drink and utilities. These are essential purchases.

By comparison, more affluent households, represented by the 9th income decile, see more pressure from recreation, restaurants and household goods / furniture. These are, arguably, optional purchases.

Putting it another way, for less well-off households inflation make survival more difficult whereas, for better-off households, inflation makes lifestyle more difficult.

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