Lower incomes disproportionately hit as inflation rises to highest level in 40 years

Orkney and Shetland MP, Alistair Carmichael, has responded to news today that inflation soared to 9% in April, warning that the disproportionate impact on lower income families meant the government must “get off its hands”. This morning the ONS announced that CPI inflation rose to 9% in the year to April, a level not seen since 1982, and significantly higher than the 7% rate in March. Analysis from the Institute for Fiscal Studies has found that inflation is now hitting less wealthy households hardest.

In April, the bottom 10% of the population in terms of income faced a rate of inflation rate of 10.9%, which was 3 percentage points higher than the inflation rate of the richest 10% (at 7.9%). Most of this difference comes from the fact that the poorest households spend 11% of their total household budget on gas and electricity, compared to 4% for the richest households.

Commenting on the news, Mr Carmichael said:

“It was always likely to be the case that rising inflation would hit people on lower incomes harder. You might think it would also be likely that the government would act to help those families to bear the cost and yet months down the line, the response from the Treasury has been half-hearted at best. There has been studied disinterest from ministers in proper action to reduce energy bills which are driving inflation, while household basics in the supermarket skyrocket.

“We have heard from the Chancellor that it would be ‘silly’ to act on these pressing challenges. Ministers have dithered over proposals to tax the massive excess profits of energy companies in order to help out families. With inflation spiking a further two per cent in one month the need for action is now, not in the autumn.

“Inflation is the highest it has been since the early days of Thatcher – it is past time the government got serious about this crisis.”

Heidi Karjalainen, a Research Economist at the IFS said:

“Inflation hit 9% in April. Because so much of the increase was driven by the increase in the gas and electricity tariff cap, poorer households who spend more of their budgets on gas and electricity, faced an even higher rate of inflation. We estimate that the poorest 10% of households faced an inflation rate of 10.9%. State benefits only increased by 3.1% in April. This means big real terms cuts to the living standards of many of the poorest households.

“Continuing pressures, such as the war in Ukraine, are likely to push Ofgem’s October tariff cap, as well as other prices including food prices, even higher later this year. We are likely to be in a prolonged period during which poorer households are facing rates of inflation even higher than the headline figures would suggest.”

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