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IFS - Cheapflation and the rise of inflation inequality
Using household scanner data for fast-moving consumer goods, we show that this was accompanied by historically high rates of inflation inequality.
The period 2021-2023 saw prices rising at historically high rates. Using household scanner data for fast-moving consumer goods, we show that this was accompanied by historically high rates of inflation inequality. We document systematic increases in the relative prices of cheaper product varieties (‘cheapflation’) over this period, and show that this drove differences in household-specific inflation rates. After accounting for substitution effects and adjusting for non-homothetic preferences, we show that the inflation-income gradient translated into a similar gradient in the cost of maintaining pre shock living standards. We also show evidence, using an earlier exchange rate shock that followed the UK’s vote to leave the European Union, that differential proportional pass-through of cost shocks is likely to be a factor driving cheapflation.
The contents of this publication are the authors’ own analysis and findings based on Kantar Worldpanel Take Home and Out of Home data, covering January 2012 to September 2023. The Take Home data cover grocery purchases made by households in Great Britain, which they scan once they get home. A booklet is provided for non-barcoded items.
The authors would like to gratefully acknowledge financial support from the ESRC Centre for the Microeconomic Analysis of Public Policy at IFS (ES/T014334/1). Chen also gratefully acknowledges financial support from the UBEL DTP Research Training Support Grant.
