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Variation in the Inflation Experience of UK Households

This report presents estimates of the inflation rates experienced by different types of household in the UK, using micro-level data from the Living Costs and Food Survey and national-level data from the Consumer Prices Index. We estimate inflation rates for households in different positions of the income and expenditure distributions, for households with and without children and for retired and non-retired households.So what do we find? First, we show that the inflation experience of UK households has differed widely over the period since 2003. Low-spending households experienced faster rates of price increase than high-spending households. Between 2003 and 2013, prices experienced by low-spending households increased by 3.3% per year but increased by just 2.3% per year for higher.A similar pattern was also observed when analysing households by income, with prices rising faster on average for household in lower income groups compared to those in higher.Households without children and retired households have also experienced a faster rate of price increase than households with children and non-retired households respectively. We also looked at the range of inflation outcomes within these groups and found the spread in inflation particularly high among retired households and households without children. Our supporting analysis also suggests that the prevalence of mortgaged home-owners in different groups is an important determinant of inflation outcomes. Finally, we also present evidence that a ‘democratically-weighted’ consumer prices index – which weights the price experience of each household equally – would have risen more sharply than the CPI over this period.

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