![]() ![]() In particular there is a large difference between the experience of those living in London and those living in the rest of the country, with those in London experiencing inflation one percentage point lower than elsewhere. ![]() Source: Authors' calculations using Living Costs and Food Survey (LCFS) 2019, and consumer prices data from the Office for National Statistics.ĭifferences in spending patterns are also driving differences in the inflation experienced in different regions. We subtract these differences from the plutocratic mean inflation rates reported here. This implies an inflation rate 1.6 percentage points higher than the official CPI in December 2021 and 0.7 percentage points higher than the Bank of England prediction for April 2022. The inflation rate calculated using LCFS budget shares gives a higher weight to several items that saw rapid price increases, including gas prices, vehicle fuel and second-hand cars. Note: April 2022 predictions assume an increase in prices of gas and electricity of 35% and 20% respectively, and the prices of other goods increase such that the overall rate of inflation is 6%. But within any group there are some who spend especially large fractions of their budgets on energy and those households will be particularly hard hit.įigure 1: Average annual rates of inflation to December 2021 and April 2022, by household income decile The difference in inflation between all households receiving benefits and all other households is more modest, meaning that a 6% uprating of benefits in line with expected overall CPI inflation would, on average, approximately cover the price rises faced by benefit recipients. Hence, in April overall inflation facing the lowest-income tenth of households looks set to be about 1.5 percentage points higher than that facing the highest-income tenth. This would lead to a mildly regressive pattern of overall inflation, because, as previous IFS work showed, lower income households spend almost three times as much of their budgets on gas and electricity as the highest-income tenth on average (11% versus 4%). comparing prices in April 2022 and April 2021), assuming that prices of gas and electricity grow at the rate predicted by the Bank of England, and that the prices of other goods increase such that the overall rate of inflation is 6%. The second series shows the likely annual rate of inflation by April (i.e. comparing prices in December 2020 and December 2021) for each tenth of the income distribution, which shows that there are currently very minor differences between the cost increases seen for goods and services that poorer households buy compared to richer households. The first are the latest annual rates of inflation (i.e. Others have predicted even steeper increases.įigure 1 shows the likely impacts of inflation on different households, given the different sets of things that they spend their money on. ![]() The Bank of England expects the caps to increase from their current level by 20% for electricity and 35% for gas, leading to year-on-year energy inflation rates of 31% and 58% respectively in April. UK customers have been protected to a large degree from the immediate effects due to tariff caps set by Ofgem, but these caps were increased by 17% for gas and 9% for electricity in October 2021, and are currently set to increase substantially again in April 2022. Wholesale prices of gas and electricity increased dramatically during 2021 as the post-pandemic economic recovery continued to pick up pace while European markets were struggling with a number of supply-side problems. But according to the latest Bank of England forecasts, inflation in the year to April 2022 is in fact expected to be around 6%.Ī particular contributor to rising prices in April will be energy costs. In April, benefits are set to rise by the rate of general (CPI) inflation in the year to September 2021, which was 3.1%. Those on low incomes will tend to find it hardest to tide themselves over during a period in which their real incomes are eroded, which by default is what happens when inflation increases sharply because the major benefits go up in line with a lagged measure of inflation. It also raises specific issues for benefits policy. Together with planned tax increases it means that average take-home pay is likely to fall over the coming year. Rising inflation affects all our living standards. ![]()
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