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Inflation high but impact evenly felt
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Today the Office for National Statistics published its inflation figures for the
year to January 2011. These figures are the first to include the effect of the
increase in the main rate of VAT from 17.5% to 20%, which took place on
January 4th. Annual inflation was 5.1% in January based on the Retail Prices
Index (RPI) and 4% based on the Consumer Prices Index (CPI).
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These rates are economy-wide averages based on average spending patterns.
However, inflation rates vary for individual households depending on their
own spending behaviour. Based on the RPI measure of inflation, Table 1
shows our estimates of annual average household inflation rates in January
2011 according to total household income. It shows that inflation was high for
households across the income distribution with little variation across income
groups. The poorest income decile (the poorest 10% of the population)
experienced an average inflation rate of 4.9% whilst the average inflation rate
for the richest decile was 5.2%.
Table 1: Average household-level inflation rates, by income group
Income Quintile
Inflation Rates Jan 2010 – Jan 2011
Poorest
4.9%
2nd
4.9%
3rd
4.9%
4th
5.1%
5th
5.2%
6th
5.2%
7th
5.2%
8th
5.3%
9th
5.2%
Richest
5.2%
All
RPI
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Immediate release
Tues 15 February 2011
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5.1%
5.1%
The fact that the average rates do not differ greatly across the income
distribution is driven by the fact that the prices of different spending
categories have increased at more similar rates than they have in recent
years. Previous IFS research showed that in 2008 and early 2009, there were
substantial differences in the average rates experienced by richer and poorer
households.
Table 2 shows annual average household inflation rates in January 2011
according to the age group of the household head. There are no large
differences in average inflation rates across age groups. Those aged between
45 and the state pension age (60 for women, 65 for men) saw a slightly higher
inflation rate than average whilst the youngest age-group saw a slightly lower
inflation rate than average. Pensioners experienced average inflation rates
that were slightly lower than for non-pensioners.
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Table 2: Average household-level inflation rates, by age group of head
Inflation Rates Jan 2010 – Jan 2011
Under 35
4.8%
35-45
5.1%
45-Pensionable age
5.3%
All Non Pensioners
Pensioners
5.2%
5.0%
Table 3 shows annual average inflation rates in January 2011 according to
family type. “Other household types” (e.g. extended families and multiple
family units within the same household) experienced the highest inflation
rate among these groups while single pensioners experienced the lowest.
Table 3: Average household-level inflation rates, by family type
Family Type
Inflation Rates Jan 2010 –
Jan 2011
Non Pensioner groups
Single Male
4.7%
Single Female
4.9%
Lone Parent
4.7%
Couple, no children
5.2%
Couple, with children
5.3%
Pensioner groups
Single Male
Single Female
Couple
4.6%
4.6%
5.4%
Other household types, with children
Other households types, without children
5.5%
5.4%
IFS Research Economist Peter Levell said “Although today’s figures show that
the headline rate of inflation was high, there is relatively little variation in
average inflation rates across household types”.
ENDS
Notes to Editors:
1. This analysis was funded by the ESRC Centre for the Microeconomic
Analysis of Public Policy and Consumer Focus.
2. A more detailed analysis of household specific inflation rates across groups
and across time with a particular emphasis on the impact of inflation in fuel
and water prices will be published next month by IFS as part of research
funded by Consumer Focus.
3. This analysis was carried out using detailed expenditure data from the 2009
Living Costs and Food Survey (LCFS) and the January 2011 price data
published today by the ONS.
4. Previous IFS research on this issue can be found at
http://www.ifs.org.uk/pr/inflation_fss09.pdf.
5. Table 1 shows that the average inflation rate across households in January
2011 was the same as the RPI figure. These numbers need not however be
the same in general. For instance, the RPI figure will be more heavily
influenced by the inflation rate of richer households since, as they spend
more, they contribute more to the average economy-wide expenditure
patterns on which the overall RPI is based. Our average gives equal weight
to richer and poorer households. Our methodology is explained in Section 3
of Leicester, A., O’Dea, C., Oldfield, Z., The Inflation Experience of Older
Households, IFS Commentary 106, available at
http://www.ifs.org.uk/comms/comm106.pdf
The Institute for Fiscal Studies
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IFS hosts two ESRC Research Centres.