Inflation and cost of living for household groups, UK: October 2022

• Consumer Prices Index including owner occupiers’ housing costs (CPIH) annual inflation was 10.5% for low-income households (those in the second income decile) and 9.1% for high-income households (those in the ninth income decile) in the year to October 2022, compared with an all-households rate of 9.6%.

• Consumer Prices Index (CPI) annual inflation was 11.9% for low-income households (those in the second income decile) and 10.5% for high-income households (those in the ninth income decile) in the year to October 2022, compared with an all-households rate of 11.1%.

• Rising energy and food costs have more bearing on the inflation rate experienced by low-income households, as a greater proportion of their expenditure is spent on them compared with high-income households.

• CPIH annual inflation for subsidised renters was 12.1%, which was higher than for owner occupiers (9.4%) and private renters (9.1%) in October 2022; these are the largest differences since the series began in January 2006.

• CPI annual inflation for subsidised renters was 12.2% in October 2022, which was higher than for owner occupiers (11.5%) and private renters (9.1%).

• Higher contributions from energy, and food and non-alcoholic beverages for subsidised renters led to the differences between tenure types in October 2022.

Consumer price inflation has continued to rise sharply in recent months. The annual rate of Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.6%, and the Consumer Price Index (CPI) increased by 11.1% in October 2022. Throughout the recent period of high inflation, the main drivers have been energy, fuel, and food prices. Inflation is high globally, with the UK experiencing one of the higher rates among the G7 countries, as highlighted in our Consumer Price Inflation, UK: October 2022 bulletin.

While the prices of most goods and services are increasing, not all households will be affected by inflation in the same way. CPIH is the most comprehensive measure of consumer price inflation. It measures the change in the prices of the goods and services as consumed by households. However, because the consumption baskets of specific households differ and prices do not all change at the same rate, the price experience of different groups of households may differ from the average figure for all households. We are therefore working towards producing Household Costs Indices on a quarterly basis in 2023. These are a set of new experimental measures that aim to show how different types of households experience inflation. More information, including how they differ from CPIH and CPI, can be found in our Developing the Household Costs Indices (HCIs): October 2020 article.

In the meantime, we can use a similar approach to produce CPIH and CPI-consistent inflation rates for different household groups, and therefore provide an insight into how these price changes can vary between different groups. This article focuses on the largest differences observed between different household groups: equivalised disposable income deciles, and private renters, owner-occupiers, and subsidised renters.

Our published CPIH-consistent inflation rate estimates for UK household groups time-series data tables also include estimates of CPI and CPIH inflation rates for households with and without children, and retired and non-retired households from January 2005 to October 2022.

This analysis uses the same items collected in CPI(H), along with the same prices, so the differences between the household groups are driven by differing spending patterns.

To compare the price changes experienced by low- and high-income households, we look at the UK household population divided into income deciles: 10 equally-sized groups of households ranked by their equivalised disposable income.

Figure 1 shows the annual rates of price growth experienced by each equivalised income decile in October 2022, as measured by Consumer Prices Index (CPI) and Consumer Prices Index including owner occupiers’ housing costs (CPIH). It shows there is variation in the rate of inflation experienced by households with differing levels of income.

The owner occupiers’ housing costs (OOH) component accounts for around 17% of the CPIH, and it is the main driver for differences between the CPIH and CPI inflation rates. This makes CPIH our most comprehensive measure of inflation. For this reason, this section focuses on the differences in CPIH consistent inflation rates. However, the recent movement and main drivers of the annual inflation rate for overall CPIH and CPI are broadly similar. For further commentary on the differences between CPI and CPIH consistent inflation rates for different housing tenures, see Section 4.

To avoid outliers in the first and tenth income deciles and to give a more realistic picture of different household experiences, the second income decile represents a low-income household group while the ninth income decile represents a high-income household group.

Figure 2 presents the annual inflation for the two income deciles between January 2008 and October 2022, alongside CPIH for all households. In March 2022, low and high-income households saw similar rates of inflation, since then the gap has widened. CPIH annual inflation stood at 10.5% for low-income households (those in the second income decile) and at 9.1% for high-income households (those in the ninth income decile) in the year to October 2022, compared with an all-households rate of 9.6%. The gap of 1.4 percentage points is the largest since March 2009, when low-income households saw a 1.5 percentage point higher inflation rate than high-income households.

Figure 3 shows the differences between the contributions to the 12-month growth rate in the second and ninth income decile. The figure indicates the contributions from housing, food and non-alcoholic drink, and energy act to increase inflation by more for the lower-income households compared with households in the ninth income decile group. By comparison, transport acts to increase inflation rate more for the ninth decile compared with the second decile, primarily driven by increasing motor fuel prices.

The magnitudes of these contributions, however, cause the difference between low- and high-income groups to be very minimal at the end of 2021. This lead to a convergence in March 2022, after which, the lower-income households’ inflation rate is pushed above the higher-income households’ because of rising energy and food prices. Energy, food, and drink tends to reflect a greater proportion of lower-income households' spending, with around 15.2% of total expenditure on these categories for low-income groups and 10.4% for high-income groups. The greater weight given to price changes for these spending categories in the low-income households group result in higher CPIH inflation for low-income groups relative to high-income groups.

Energy and food prices

The differences in the contributions can be explained by the recent trends seen in energy and food prices. Sharp increases in global wholesale gas prices have pushed up energy prices in the UK, with 12-month inflation rates for October of 65.7% for electricity and 128.9% for gas. This follows an increase in the Office of Gas and Electricity Market (Ofgem) cap on energy prices in October 2021 and April 2022. In October 2022, the Energy Price Guarantee (EPG) was introduced meaning for the typical household, energy bills would rise to an average of £2,500 a year. This has limited the extent that inflation would have risen without the policy intervention (with bills otherwise being set to rise £3,459 for the average household according to Ofgem’s Press release, 26 August 2022). Higher energy prices accounted for around positive 0.91 percentage points of the difference between low- and high-income households’ inflation rates in April 2022, and positive 1.21 percentage points of the difference in October 2022.

Food and non-alcoholic beverages accounted for around positive 0.56 percentage points of the difference between the second and ninth income decile in October 2022. This contribution to the difference has more than doubled since November 2021. Global food prices have risen since Russia’s invasion of Ukraine in February 2022. This has contributed to global commodity price increases and alongside supply chain disruption, food producers face increased input costs. In October 2022, 57% of food retailers reported to the Business Insights and Conditions Survey (BICS) having to pass on price increases to customers. In our Consumer price inflation, UK: October 2022 bulletin, food and non-alcoholic beverage CPIH was estimated to be at their highest annual rate since September 1977 at 16.4%. While food price rises have been broad based since the beginning of 2022, with all the price of food product categories rising, higher prices for bread and cereals, milk, cheese and eggs, and meat have contributed more to inflation for low-income households.

Data from the Opinions and lifestyle survey (OPN) show, in response to price increases, those with personal incomes of less than £40,000 were more likely to spend less on food shopping and essentials than those with personal incomes of £40,000 or more. Food store sales volumes fell by 1.8% in September 2022 and were 3.2% below their pre-coronavirus (COVID-19) February 2020 levels, as highlighted in our Retail sales, Great Britain bulletin.

Data from our Tracking the price of the lowest-cost grocery items, UK, experimental analysis article, show the cost of the lowest items increased by 17% in the 12 months to September 2022, with the cost of vegetable oil (65.2%), pasta (59.9%) and tea (46.0%) increasing by the largest percentage on the year to September 2022. While these moves are broadly similar to the broader move in food prices as measured by the CPIH, households who already buy the lowest cost grocery items do not have the opportunity to substitute to cheaper options and are affected more by these increasing costs.

Households are assigned into one of three tenure types: owner occupiers, private renters, and subsidised renters. For definitions, see Section 5: Glossary.

Figure 4 shows the most recent inflation rates for October 2022 as measured by Consumer Prices Index (CPI) and Consumer Prices Index including owner occupiers housing costs (CPIH) by each tenure type. Figure 5 shows the annual rates of price growth experienced by each tenure type between November 2017 and October 2022, compared with the overall CPIH and CPI annual growth rate. Subsidised renters’ inflation was above overall CPIH and CPI for most of the period. Between November 2021 and October 2022, private renter households consistently had the lowest annual average rates of price growth of the three tenure types.

CPIH annual inflation for subsidised renters stood at 12.1% in October 2022. This is higher than for owner occupiers (9.4%) or private renters (9.1%), with a difference of 2.7 and 3.0 percentage points; these are the largest differences since the series began in January 2006. While the difference in CPIH between owner occupiers and private renters remained relatively stable over the period since January, the difference between the CPIH inflation experience of owner occupiers and subsidised renters increased.

When measured on a CPI basis, the owner-occupier’s inflation rate in the year to October 2022 was 11.5%, as opposed to a 9.4% on a CPIH basis. The difference between these measures is because of the exclusion of owner occupiers housing costs (OOH) and council tax in the CPI measure. OOH reflect the flow of services a household receives from owning a property, and is consistent with national accounts methodology. OOH are measured on a rental-equivalence basis, the value of the use of the house is deemed to be equivalent to what the rent would be.

The exclusion of these components from CPI result in a higher weight given to the expenditure on non-discretionary spending, such as food and energy. The prices of these components are increasing at a faster rate than OOH, as such we see a 2.1 percentage point higher CPI measure compared with CPIH measure for owner-occupiers in October 2022. While the differences between CPI and CPIH measures of inflation for both subsidised renters and private renters are minimal, owner-occupiers housing costs do not contribute to the CPI or CPIH inflation rate for these groups.

The trends in the differences in the inflation rates between subsidised renters and private renters can be explained more clearly by looking at the differences in the contributions to the 12- month growth rate. Figure 6 shows the CPIH difference in contributions for subsidised renters less private renters. If the bar is positive, it means that the contribution for that component is higher for subsidised renters than private renters (that is, the component is pushing the inflation rate of subsidised renters higher compared with private renters). If it is negative, the contribution is higher for private renters than subsidised renters (that is, the component is pushing the inflation rate of private renters higher compared with subsidised renters). The line shows the overall difference in the 12-month growth rate between subsidised renters and private renters.

The contribution of most categories remains higher for subsidised renters compared with private renters throughout the period, with the gap widening further in the latter half of 2022. The driver of this difference in experienced inflation is not only rising energy prices (that accounts for 1.99 percentage points of the difference to the contributions to annual inflation in October 2022) but also, food costs. Subsidised renters spend approximately 13.3% (on average) of expenditures on food and non-alcoholic beverages when measured on a CPIH basis. The same share is 9.1% and 8.9% for private renters and owner-occupiers.

Overall, inflation is increasing for all households no matter how we measure it, but not everyone is experiencing this increase in the same way. Within the CPI and CPIH framework, housing costs are treated differently for renters and owner-occupiers. The Opinions and lifestyle survey (OPN) also collects data on how the perceived costs of owning or renting a home have changed.

In the period June to September 2022, around one-third (32%) of those currently paying rent or mortgage payments said their housing payments had increased in the last six months, as highlighted in our Impact of increased cost of living on adults across Great Britain article. This varied by tenure type, with all renters (38%) more likely to report increased housing costs relative to mortgagors (25%). This reflects mortgagors being more likely to be on a fixed rate deal, and subsidised renters seeing rent increases in April 2022.

Subsidised renters have limits set by rents policy on the extent that their rents increase each year, as outlined in GOV.UK’s Limit on annual rent increases 2022-23 guidance. These households tend to be more concentrated in the lower-income quintiles, while mortgagors are concentrated in the higher-income quintiles, as highlighted in the Department for Levelling Up, Housing & Communities’ English Housing Survey (PDF, 1,101 KB). It is therefore unsurprising that subsidised renters’ inflation rates follow similar patterns to those in the lower-income deciles. Subsidised renters have lower expenditure shares for housing costs than other tenure types. This increases the expenditure shares of other non-discretionary items, such as energy and food, leading to them being more exposed to energy and food price increases. This explains most of the differences in inflation rates in 2022.

The difference in CPIH contributions between owner-occupied households less private renters is shown in Figure 7. The main drivers for the difference in inflation rates for these two groups are the differences in contributions from energy, recreation and culture, and household furniture, equipment, and maintenance. These categories account for around 20.7% of expenditure for owner-occupiers as opposed to 14.6% for renters. Increased contributions from housing costs tend to pull inflation up for the private renters, but this is offset by the categories described. The difference between the two groups tends to decline as we move into the latter half of 2022, until October 2022 when the gap widens back to 0.3 percentage points with more pronounced energy and recreation and culture contributions.

Owner-occupiers’ CPIH increased by 9.4% in the year to October 2022, whereas CPI inflation for owner-occupiers increased by 11.5%. The main driver in the difference between the CPI and CPIH measure is the inclusion of OOH in CPIH. Excluding OOH from CPI results in a 8.2 percentage point higher expenditure weight for energy, food and non-alcoholic drink, and recreation and culture for owner-occupiers in the CPI measure of inflation compared with CPIH. The price of these components are increasing at a faster rate than other CPI divisions, including rents, and renters spend on average less of their total expenditure on these goods and services. As a result, the gap between owner-occupiers and private renters CPI widens in October 2022 to 2.4 percentage points.

Owner-occupiers covers both those households who have paid their mortgage in full and mortgagors (both new and existing). While these data are conceptually out of scope in CPI and CPIH, the recent increases in house prices, as highlighted in our UK House Price Index: August 2022 bulletin, means that households who have just bought a house or are trying to buy are on average paying more for the same house than they would have a year ago.

In addition to higher house prices, mortgage interest rates have also been rising rapidly since last year. According to the Bank of England, the effective interest rate on the stock of outstanding mortgages has gone up from 2.04% in September 2021 to 2.24% in September 2022. In comparison, effective interest rates have seen a steeper rise from 1.78% to 2.84% on new mortgages for the same period. Putting these two elements together, households who recently have taken out a new mortgage, or prospective homebuyers are often taking on larger mortgages and paying more in interest each month.

Disposable income

Disposable income is income that is available for consumption and is equal to all income from wages and salaries, self-employment, private pensions and investments, plus cash benefits less direct taxes.

Disposable income deciles

Households are grouped into deciles (or tenths) based on their equivalised disposable income. The richest decile (decile 10) is the 10% of households with the highest equivalised disposable income. Similarly, the poorest decile (decile 1) is the 10% of households with the lowest equivalised disposable income. Similarly, disposable income quintiles are grouped into fifths.

Equivalised

Income groups are based on a ranking of households by equivalised. Equivalisation is the process of accounting for the fact that households with many members are likely to need a higher income to achieve the same standard of living as households with fewer members.

Equivalisation considers the number of people living in the household and their ages, acknowledging that while a household with two people in it will need more money to sustain the same standard of living as one with a single person, the two-person household is unlikely to need double the income. This analysis uses the modified Organisation for Economic Co-operation and Development (OECD) equivalisation scale.

Owner occupier households

Owner occupier households are defined as any household in which the residents own the property outright or are buying the property with a mortgage. This includes shared owners (who own part of the property; paying both rent and mortgage).

Private renter households

Private renter households are defined as any household that rents their property from a private sector landlord. It excludes households who live in their property rent-free.

Subsidised renter households

Subsidised renter households are defined as any household that either rents their property from a council, a registered social landlord or live in their property rent-free.

More information on the methodology used to calculate these indices can be found in our Methodology to calculate CPIH-consistent inflation rates for UK household groups.

This analysis uses the same items collected in CPI(H), along with the same prices, so the differences between the household groups are driven by differing spending patterns.

Data constraints

While the calculation of inflation rates for household groups is straightforward analytically, a range of data constraints make their estimation challenging in practice. For instance, an analysis of household group-specific inflation rates would ideally use price indices and expenditure weights specific to each household group. This would reflect the fact that different households will purchase goods and services from different outlets and therefore face different prices.

However, data are not available on specific price indices and therefore we have had to use national price indices as an approximation. There are also a number of challenges that come from the data sources that we have available for us to calculate the expenditure shares. These limitations do not impede the validity of the chosen methodology and its robustness. For more information, please see the related methodology.

Weighting

Price indices are constructed using price and expenditure data. These expenditure shares can be calculated using different methodological approaches; the main two are democratic and plutocratic weighting. Our Investigating the impact of different weighting methods on CPIH methodology compares the two approaches, alongside additional approaches to weighting a price index.

For the purpose of this article, plutocratic weighting is used, which is consistent with the method of weighting used in Consumer Prices Index including owner occupiers’ housing costs (CPIH). Plutocratic weighting is also the most common approach used internationally. Using plutocratic weighting allows for comparisons to be made between the household group inflation rates and the headline CPIH, because both are produced within an established framework.

However, for analytical purposes we have also produced democratically weighted inflation rates for each household group. Data are available to download alongside this release in Section 4.