Why does inflation hit poorer households harder?

Inflation hits poorer households harder when the things whose prices rise fastest take a bigger bite out of their budgets. Lower-income households spend a greater share of their income on food and energy, which were two of the more rapidly inflating areas in the UK's cost-of-living crisis, so they faced a higher effective inflation rate than the wealthy. In November 2022 wealthier households experienced inflation of 9.6%, and poorer households 12.5%, the largest gap on record.

A second explanation comes from researchers at the Institute for Fiscal Studies, who found 'cheapflation' between 2021 and 2023: the cheapest groceries jumped in price more sharply than premium brands, which hit households with tighter budgets.

There is more to it than baskets. With high inflation, purchasing power is redistributed from those on fixed nominal incomes, such as some pensioners whose pensions are not indexed to the price level, towards those with variable incomes whose earnings may better keep pace. Debtors with fixed-rate debts see the real interest rate they pay fall as inflation rises, while holders of cash see its purchasing power decline.

But the gap is not a law of nature. In the year to March 2026 the Office for National Statistics measured costs rising 3.7% for low-income households and 3.5% for high-income ones, a small difference: the answer depends on the period and on how you measure.