Lowest income households face highest rise in living costs

As inflationary concerns remain in the spotlight with a slight lift in headline inflation last month, the latest study by the Alliance Trust Research Centre shows that the lowest income households face an inflation rate substantially higher than the rest of the UK population.

The two-year study looking at the relationship between income levels and inflation reveals:

On average, inflation for the lowest income households (annual income of less than £7,000) has been 34% higher than the headline rate of inflation (Consumer Price Inflation).

Households within the two highest income groups have experienced the lowest levels of inflation over the period of Alliance Trust’s study (2005/06).

The difference in levels of inflation between the poorest and richest UK households is so pronounced because low income households spend 41% of their budget on basic goods and necessities (housing, utilities, food and beverages) which have seen the biggest price rises. In contrast, the highest income households spend just 17% of their budget on these basic items, leaving a much higher percentage to be spent on discretionary goods some of which, such as clothing and audio visual products, have been getting cheaper over the last two years.

Shona Dobbie, head of the Alliance Trust Research Centre said: “Our two-year study has shown consistently that the UK’s lowest income groups are facing an inflation rate which is substantially higher than the average headline inflation rate. This is a direct result of this income group’s shopping basket. Inevitably the lowest income group will spend more of their budget on necessities such as housing and utilities and unfortunately it is these goods that have seen the sharpest increase in prices over the last two years. Over 2006, gas prices rose 40%, electricity prices were up by 27% and some food prices, such as fish, oils and fats increased by at least 10%.”