New research by Institute for Fiscal Studies (IFS) has found that inflation for the poorest households is likely to increase even faster than for the richest, and could hit 14% in October.
The IFS analysis incorporating an £800 increase to Ofgem’s tariff cap in October shows that the pattern of poorer households being hit harder by inflation is likely to continue. A more than doubling of prices of gas and electricity will further increase the difference in the rate of inflation experienced by richer and poorer households. Assuming an average rate of inflation of 10%, as currently projected by the Bank of England, the analysis suggests that the poorest households may face average inflation rates of as high as 14%, compared to 8% for the richest households.
IFS Research Economist Heidi Karjalainen said “Ofgem now predicts that the average annual tariff cap will reach £2,800 in October. This means a more than doubling of the tariff cap compared to October 2021. As poorer households spend more of their budgets on gas and electricity, this increase is likely to hit poorer households harder. This is also likely to further widen the gap between rates of inflation faced by the poorest and richest households. Assuming an overall rate of inflation of 10%, as projected by the Bank of England, the poorest 10% of households may face inflation rates of as high as 14%, compared to 8% for the richest households.”