Measuring cost of living inequality during an inflation surge

We provide new evidence that inflation inequality surged during the 2021–2023 cost-of living crisis, driven by systematically higher price growth for lower-quality goods disproportionately consumed by poorer households. While substitution in response to relative price changes helped mitigate cost-of-living increases, it did not reverse historically high cost-of-living inequality. Declining living standards drove many households to trade down to lower-quality goods, further exposing them to the strongest price increases. Our findings have important implications for cost-of-living measurement and policymaking in an inflationary environment and underscore rising political discontent, as lower-income households face the steepest rise in their living costs.

The contents of this publication are the authors’ own analysis and findings based on Kantar Worldpanel Take Home and Out of Home data, covering January 2012 to September 2023. The Take Home data cover grocery purchases made by households in Great Britain, which they scan once they get home. A booklet is provided for non-barcoded items.

The authors would like to gratefully acknowledge financial support from the ESRC Centre for the Microeconomic Analysis of Public Policy at IFS (ES/T014334/1). Chen also gratefully acknowledges financial support from the UBEL DTP Research Training Support Grant.