New IFS research shows that the prices of cheaper brands of food, drink and other grocery products rose much faster than more expensive varieties.
Prices rose at historically high rates over the period 2021-2023, with the overall CPI rising by 15.7% and food and drink prices rising by 28.4% between September 2021 and September 2023. These had uneven impacts across households according to the types of products that households buy.
The fact that food prices rose more than other prices will have meant that poorer households - who devote more of their spending to food - suffered higher inflation rates over this period than headline figures would suggest. New IFS research shows that, on top of this, the prices of cheaper brands of food, drink and other grocery products - disproportionately consumed by lower income households - rose much faster than more expensive varieties. In particular, the grocery products sold that were initially among the cheapest 10% in each spending category (i.e. the cheapest types of pasta, butter, milk and so on) rose in price by 36.2% compared to 15.8% for products that were initially in the 10% of most expensive products over this period.
This ‘cheapflation' led to households in the bottom quarter of the spending distribution experiencing inflation rates 5.6 percentage points higher than those in the top quarter, adding around £100 to the annual cost of a shopping basket for households in the bottom quarter of spending, compared to a situation where poor had experienced the same inflation rates as the rich.
What's more, differences in the rates of inflation across cheaper and more expensive varieties of the same product categories accounted for all of the difference in the inflation rates experienced by rich and poor households for grocery products over this period. That is, differences in how much different consumers spent across categories of goods (butter, pastries, pasta) did not explain differences in the inflation rates of food prices households experienced. Rather, it was differences in the products households purchased within these categories.
Official statistics measuring the inflation rates of high- and low-income households, which already show that poorer households experienced higher inflation over this period, do not reflect differences in the prices of brand vs premium varieties and so likely understate differences in the inflation rates of rich and poor in times of rising inflation. Measures such as the Office for National Statistics Household Cost Index account for differences in the spending patterns of rich and poor households, but only across items such as “bread” and “milk” etc. They do not account for differences in the inflation rates of more or less expensive varieties of bread (for example).
The research also found that:
- Households shifted towards cheaper varieties of goods over this period to deal with the rising cost of living. The share of their spending that households devoted to products which were initially among the cheapest 10% rose by 2.2 percentage points from 2021 Q3 to 2023 Q3.
- The differences in the rates of grocery price inflation experienced by rich and poor households over the 24 months from 2021 Q3 to 2023 Q3 are unprecedented in recent times. No equivalent 24-month period over the previous 10 years saw such high differences in the inflation rates of these two groups.
Tao Chen, an IFS Research Scholar said “Widespread ‘cheapflation' pushed up the prices of the most inexpensive varieties of grocery products over the last 2 years. This hit poorer households harder. Individual households will almost always experience a different rate of inflation to headline numbers such as the CPI because these measures are based on average consumer spending patterns across the economy. Our research shows that it's important to take account of differences in the products people buy at a very fine level to detect differences in how they are being affected by the rising cost of living.”