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UK Economy
Inflation higher for the poor, study finds
From the Financial Times of Mon, 15 Dec 2014 14:18:17 GMT
A stack of U.K. one pound coins sits next to a twenty pound note, arranged for a photograph in London, U.K., on Monday, Aug. 17, 2009. The pound's biggest five-month rally in 24 years is ending as the Bank of England floods the shrinking U.K. economy with newly printed cash and slowing inflation precludes higher interest rates to lure investors. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

Inflation was much higher for the poorest families in Britain during the past decade than it was for the richest, according to the Office for National Statistics.

The poorest 10 per cent of British households experienced average annual inflation of 3.3 per cent between 2003 and 2013 while for the richest 10 per cent inflation was one percentage point lower at 2.3 per cent.

Necessities, particularly food and energy, have increased in price much faster than other items and make up a greater proportion of household budgets for poorer families.

“It suggests that some subgroups of the UK population have faced relatively strong headwinds in recent years, eroding both their real incomes and their capacity to spend,” the ONS said about the report.

The report will intensify debate over the so-called cost of living crisis, which Labour leader Ed Miliband has highlighted in his critique of the coalition government.

Real wages, which declined for the longest period since records began in the aftermath of the financial crisis, have fallen even more for low earners than for high earners thanks to the different rates of inflation the two groups have experienced.

However, the result also implies that recent falls in the price of oil and declining food prices ought to benefit the poorest the most as well.

The contrast in experiences of inflation are even starker when compounded over the period. Between 2002 and 2013 the goods purchased by the decile with the highest expenditure have increased by 31 per cent whereas for the lowest decile prices inflation was 51.7 per cent.

Retired households and those without children have also experienced higher inflation as well, according to the ONS analysis, although the gap was much smaller than the one between the richest and poorest households.

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