Cost-of-living gap between rich and poor hits fresh high, as effective inflation rate for low-income households hits 12.5 per cent

A jump in energy costs, despite the Energy Price Guarantee (EPG), and rising food prices, which rose by 16.4 per cent (the biggest annual increase since 1977), pushed CPI inflation to 11.1 per cent in October, and 12.5 per cent for low-income households, the Resolution Foundation said today (Wednesday) in response to the latest ONS prices data.

As lower income households spend more of their budgets energy bills and food their effective inflation rate is higher than average: 12.5 per cent for the poorest tenth of households, compared to 9.6 per cent for the richest ten per cent. The Foundation calculates that this 2.9 percentage point cost-of-living gap is likely as its highest level since at least 2006 when records began.

The Foundation adds that as winter comes around and the heating is turned on, different age groups will also experience differential inflation rates. With older people spending a far greater share of their income on heating than any other age group, people aged 80 are now facing an effective inflation rate of 15.3 per cent, with it likely to worsen further this winter.

There were some positive signs in the latest data too. Output producer price inflation – which can be a leading indicator for future inflation pressure – continued to fall from 16.3 per cent to 14.8 per cent (down from a peak of 17.3 per cent in July). Lower wholesale gas prices should also put less pressure on energy bills next year.

Jack Leslie, Senior Economist at the Resolution Foundation, said:

“Everyone in Britain is affected by double digit inflation – which has caused pay packets to shrink at record rates. But some groups are more effected than others, and Britain now has a significant cost-of-living gap between rich and poor households.

“Rising energy bills and rapid food prices mean that low-income households now face an effective average inflation rate of around 12.5 per cent, while in the cold winter months, the over 80s are already facing inflation rates of around 15.3 per cent.

“This shows why the Chancellor needs to protect vulnerable households through the ongoing cost-of-living crisis when he sets out his Autumn Statement.”