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Inflation: different impacts on different people

Tom White

17th October 2013

 How bad is inflation? Like any good answer, your response to this question will include an element of evaluation, probably wrapped up in a sentence containing the phrase "it depends". With inflation, the impact is significantly influenced by who you are. Stated simply, different groups of people have different experiences of inflation.

The best way to understand why this is the case is to remind yourself how inflation is calculated. The key concept is that there is an imaginary basket of goods (see above) which attempts to capture the average spend of the average household. The thing is, you're not average - so you have your own experience of inflation.

I've grouped together several articles on the subject of the measurement of inflation here, including the one discussed below.

Inflation is in the news this week, but my eyes have been drawn to a terrific article in The Economist that should be recommended reading to anyone who is interested in this topic. The main points being made are summarised in these two graphs that appear in the article:

Firstly, the fact that inflation is an average of the change in many prices:

Secondly, because different groups have different spending patterns, they experience different rates of inflation:

Tom White

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