The variation of inflation across the population

Every month the Office for National Statistics publishes the latest data on inflation in the UK. At the moment inflation is pretty low, running at around 1½ percent per year (based on the Retail Prices Index).

But it's not 1½ percent for everybody. Indeed it's debatable whether inflation is exactly 1½ percent for anybody.

In research published today, funded by the Nuffield Foundation, the IFS has looked at how inflation rates vary across the household population.

Inflation differs across households because spending patterns vary and the prices of different goods and services change at different rates. If your household spends most of its budget on, say, food, and the price of food goes up relatively quickly, so will your own rate of inflation.

The report shows that:

• Inflation rates vary widely across different households. The headline rate of inflation is not necessarily a good guide to the actual rates of inflation experienced by individual households.
• On average the proportion of households, whose inflation rates are likely to be within one percentage point of the headline measure, is around one third. In the last 25 years this proportion has been as low as one tenth and never higher than two thirds.
• In general there are fewer households whose own inflation rate is close to the headline rate when inflation is high.
• Over the last 25 years patterns in inflation rates for different sub-groups of the population have varied a great deal. Overall, however, richer-than-average households, non-pensioners, households paying a mortgage, the employed and childless households have all faced higher-than-average inflation.

Official methods of measuring changes in poverty and economic inequality, do not take into account the different effects of inflation on living standards. The report shows that this risks giving a false picture of the changing nature of inequality in the UK.

Ends

Notes to Editors

1. The distributional aspects of inflation by Ian Crawford and Zoë Smith is published on Wednesday 19th June 2002. It is available from IFS for £25 (£10 to IFS members).
2. For press enquiries and press copies of the report, contact Emma Hyman (020 7291 4850).