Analysis of inflation - impact on households with different income levels

The economic news this week has been dominated by the announcement of a very low rate of inflation. Information from the ONS shows a few more interesting nuggets of data that economics students might like to know.A reminder, also, that when we start talking quantiles, deciles and indexes, we are now only a few short months away from the arrival of new specifications for the A level and teachers need to start thinking about how they will integrate further quantitative methods into their lessons. If you wish to know more, stock up on a few resources and think about how the A level will change please join us on our latest teacher CPD event in London on the 12th of February looking at how to Master Quantitative Methods (book online from here).

The ONS produced a report in December 2014 showing the 'real' inflation rate for different income groups over the 2003 - 2013 period. Their research shows that the average CPI experienced over that period was 2.6%. However, those households in the lowest decile of income experienced an average inflation rate of 3.3% compared to CPI calculations showing that the wealthiest decile experienced price increases of 2.3%. What that meant was that the poorest section of society saw prices of their basket of goods rise by 45.5% compared to a rise of just 31.2% for those in the highest earning households.

Now, how you use information like this is the interesting part of being an economics teacher! The ONS reports these facts but doesn't give much insight into why these figures look this way. I would be asking students to think about the difference in the basket of goods the different deciles would consume and what poorer people consume as a higher proportion of their income then wealthier people. A question might also arise about how this has impacted on equality for the UK's society and the possible consequences on economic growth. What is also fascinating is to think that this rise in inequality occurred during a period where both the Labour and a Coalition parties were in power.