Inflation hitting low income, rural and older households harder – Central Bank
A new report from the Central Bank has found that lower income, older and rural households have faced a higher than average increase in the cost of living in recent months.
This is because they spend a bigger proportion of their income on heating, energy and transport, all of which have gone up sharply in price.
In an Economic Letter published today, Central Bank economist Reamonn Lydon examines how different income groups have different expenditure patterns.
The report finds that low income households spend 14% of their disposable income on energy compared to 5.5% for high income households.
Using inflation figures for December 2021, the report says that while the average rate of inflation was 5.7%, inflation for both lower income and older households was 6.1%. Rural households experienced inflation of 6.2%.
The highest 20% of income households experienced inflation of 5.3%, the Central Bank research shows.
Approximately half of the inflation experienced by rural households was attributed to energy costs, compared to 41% for urban dwellers.
Urban, non or low driving, high income households without children experienced an inflation rate of 4.3% compared to a 6.5% inflation rate for rural, driving, low income households with children.
The study goes back to 1998 to examine if the difference in the rate of inflation experienced by different income groups is something that has persisted over time.
However, it concludes that any differences in the past were “short lived”.
It also finds that there have been periods when inflation is relatively lower for lower income households compared to higher income households, particularly when energy prices were falling over the period 2013-16.
The study also finds that the cumulative growth in nominal incomes of both lower and higher income groups since 2004 has outpaced the cumulative increase in energy prices so that both groups are better off in terms of their purchasing power.
The report suggests that monetary policy actions, such as increasing interest rates, will not do much to address the impact of higher energy costs and “could also do more damage”.
It says it is these concerns that support the “gradual” approach of the ECB to monetary policy in the current climate.
The report supports policies like the winter fuel allowance to assist lower income groups.
It also repeats a warning contained in the Central Bank’s recent Quarterly Bulletin, that higher energy prices might persist for some time to come.