Monetary Policy Committee  

Inflation increasing faster for poorer households, IFS says

Inflation increasing faster for poorer households, IFS says
(Andy Rain/EPA-EFE/Shutterstock)

Rising food and energy prices will hit the poorest households in the UK more than the richest, according to research.

Analysis from the Institute of Fiscal Studies last week showed that the poorest 10 per cent of households faced an inflation rate of 10.9 per cent in April, three percentage points higher than that experienced by the richest 10 per cent of households.

Coupled with the announcement yesterday that the energy tariff cap is likely to hit £2,800 in October, IFS said the pattern of poorer households being harder hit by inflation is likely to continue.

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The research shows, assuming an average rate of inflation of 10 per cent, the poorest households may face average inflation rates of 14 per cent, compared with the 8 per cent faced by richest households.

Inflation is due to hit poor households harder in coming months

Source: IFS

Heidi Karjalainen, research economist at the IFS said: "As poorer households spend more of their budgets on gas and electricity, this increase [in the energy price cap] is likely to hit poorer households harder. 

“This is also likely to further widen the gap between rates of inflation faced by the poorest and richest households.”

The rate of inflation has risen steadily since May last year, hitting 9 per cent in April.

Earlier this month, the Bank of England raised interest rates to 1 per cent in a bid to tame the soaring rate of inflation.

However, the governor of the BoE, Andrew Bailey, said earlier this week that the bank cannot stop inflation hitting 10 per cent.

Yesterday (May 25) Bailey fought back against criticism of the central bank’s handling of inflation.

He said he “rejects” comments that the BoE’s monetary policy committee let demand get out of hand and “thus stoked inflation”.

“The facts simply do not support this,” he said. 

Bailey said UK GDP was just 0.6 per cent above its pre-Covid level, and “substantially” below the path it was expected to follow pre-Covid.

“What we do have is a very tight labour market,” he said. 

“But that does not look like a story about rapid demand growth. It looks much more like an impact from the supply of labour.”

 sally.hickey@ft.com