Inflation no higher for those on lower incomes – but it hits harder

Inflation is similar for higher earners and lower earners, with inflation for higher earners at 5.5% and lower earners at 5.3% – but underlying the figures are major differences. Higher earners are seeing prices driven primarily by transport costs. Those on lower incomes are facing rising household costs, which dominates more of their budgets. Retired and non-retired households have experienced similar inflation rates since April, with both at 5.4% in December 2021.

After work by Jack Monroe, a campaigner against poverty and inequality, the ONS has put out historic breakdowns of inflation by income groups: CPI-consistent inflation rate estimates for UK household groups – Office for National Statistics

It will release further breakdowns in its Household Costs Indices in May. Monroe will be putting out their own Vimes Boots Index of the prices of supermarket budget ranges.

Sarah Coles, senior personal finance analyst. Hargreaves Lansdown: “Inflation is no higher for those on lower incomes at the moment, but it hits harder. People on lower incomes already have lower financial resilience, and they have far fewer options when it comes to cutting costs. It means an awful lot of people face an impossible challenge over the next few months.

Overall, higher earners face a very fractionally higher inflation rate, largely because they spend a larger proportion of their income on transport. Hikes in petrol prices and the cost of cars have helped push inflation for this group to 5.5%. However, price rises for this group have also been driven by nice-to-haves like restaurants and hotels, furniture and household goods and recreation and culture. These are far easier costs to cut if price rises risk busting the budget.

Lower earners, meanwhile, saw price rises driven by household costs, including the runaway price of energy. Right now, it’s impossible to shop around for a deal cheaper than the energy price cap, and given that this is set to rise by as much as £600 in April, this could be catastrophic for many of those on lower incomes.

Campaigner Jack Monroe has also drawn attention to the fact that those on lower incomes also have far fewer options when it comes to cutting the cost of the supermarket shop. Those who have traded down to supermarket budget ranges have found prices rising significantly and some products withdrawn – forcing them to trade up to more expensive versions of the products again.

The first HL Savings and Resilience Barometer, produced with Oxford Economics, found that those on lower earnings were far less financially resilient even before these prices started rising. While higher earners saw their costs drop 10% during lockdowns, those on lower incomes saw them flatline. Meanwhile, many of them saw their hours cut, were furloughed or lost work altogether, leaving them struggling to make ends meet.

Now that prices are rising, that struggle will get even more acute, and while the Barometer forecasts a drop in financial resilience across the board, for those on lower incomes this could mean real hardships.”