When it comes to consumer price rises, not all households are the same. Some households are more sensitive to increases in the cost in food, others to rent or healthcare or energy expenses. This issue is little studied in Luxembourg.
Nationally, across all households, consumer prices rose by 0.1% in January 2022 compared to the previous month, and by 3.6% compared to January 2021, according to Statec, Luxembourg’s statistics bureau.
Energy prices were the biggest driver of inflation in January 2022, on 16 February. Natural gas was up by 22.9%, home heating fuel by 11.8%, petrol by 4.9% and diesel by 4.7%. Electricity, however, dropped by 3.2%. Clothing and footwear, as well as household goods, were cheaper, due to winter sales, Statec said.
The cost of food products rose by 0.9% overall in January 2022. The largest gains were recorded for fresh fish (+5.9%), bread (+1.4%), meat (+1.4%) and cheese (+1.1%). Prices for pasta and couscous (-2.0%), fresh fruit (-0.8%) and fresh vegetables (-0.6%) fell from December 2021. Between January 2021 and January 2022, food prices increased by 2.9%.
Inflation and household income
In January, Jack Monroe, a British food writer and anti-poverty campaigner, took to Twitter to express her exasperation over how the Office for National Statistics, the UK’s statistics agency, calculated cost of living increases. People on modest incomes are hit harder by food price rises than the well-off, argued Monroe. She previously ran a budget-friendly cooking blog and has tracked grocery prices for several years.
Her comments were sparked by the ONS report that the cost of living was up by 5%. However, over the previous year, the price of the “cheapest pasta in my local supermarket” (likely the one selected by poorer households) rose by 141%, while the cheapest rice rose by 344% and peanut butter was up by 142%, according to Monroe. Meanwhile, the cost of upmarket ready meals have been steady for at least a decade.
The comments went viral and were widely reported across traditional media. A week later, the ONS it would restart publishing inflation figures broken out by household income. The ONS had published its most recent “” in July 2020, with the database going back to 2005. “Given methodological and resource challenges over the pandemic we had to temporarily suspend the publication, but we will be publishing updated estimates in May,” an ONS spokeswoman told Delano on 15 February.
Last weekend, Monroe reported that the cheapest pasta in her local supermarket, the one that whose cost had spiked by 141%, had returned to last year’s price. In other words, it was now 0% more expensive than in January 2021. The same for basic rice. Peanut butter was actually slightly cheaper.
Luxembourg data difficult to locate
It is difficult to find information about the impact of inflation on Luxembourg households with different income levels. “Statec does not publish inflation figures based on revenue,” Marc Ferring, the statistic bureau’s head of unit for consumer prices, told Delano on 15 February.
Statec did examine the issue, along with age and household composition, in fine detail five and a half years ago. The agency, in line with EU standards, produces consumer price indices that “correspond to the average consumption structure of all households” in the grand duchy. “However, it is known that some subpopulations have structures of different consumption,” Statec wrote in a report called “”, released in October 2016. “For example, spending on rent generally takes up a much larger share of the budget of low-income households. Older households spend more on their health.”
Household income
The study covered the period from January 2000 to June 2016. Statec concluded that lower income household “are more affected by price increases” than higher income households. The paper divided households into ten equal parts. The “D1” group represented the lowest income families, while “D10” represented the wealthiest. The authors noted: “The most significant inflation is suffered by the 10% of households with the lowest standard of living. On the contrary, the households with the lowest inflation rate are the most affluent. Households in the highest slice of standard of living (D10) faced below average inflation.”
Statec said that higher inflation rates for lower income households was due “first of all to the weight of rent” in their budgets. Other drivers included the cost of care and retirement homes, sewage fees, tobacco products, energy and childcare. Inflation experienced by higher income households was driven more by home cleaning and maintenance services, travel, restaurant meals and jewellery.
Household composition
The nationality of people living in a household made no noticeable difference to its inflation rate, Statec stated in the 2016 study. However, those living alone experienced higher growth in expenses. The report said that inflation for households composed of single adults rose between 2000 and 2016 by 2.4%. That compares to 2.2% for households comprised of two adults and two children.
Delano asked Ferring what could account for this counterintuitive difference. Ferring was not involved with 2016 paper and did not have access to the underlying data, so could only provide a general hypothesis. “It could be that prices for goods and services for children increased less than other products, leading to a lower overall inflation for households with children,” he speculated.
Delano asked if a household having two incomes or Luxembourg’s family allowance system could tip the balance. This was unlikely, he said. Ferring pointed out: “The fact of having two incomes instead of one income doesn’t change the inflation figures if the consumption pattern doesn’t change. The difference in inflation figures for different households is due to a different consumption pattern, not necessary the income itself. However, the consumption pattern likely changes with a higher--or lower--income as well as with the number of people living in the household.”
Age
Older residents were hit by higher inflation rates than younger people, the Statec paper reported. Between January 2000 and June 2016, the cumulative inflation rate was 36.3%. However, those aged 16-29 experienced a gap of -2% below the national average, with those aged 30-49 having a gap of -1.2%. On the other hand, those aged 65 and above had a gap of +4.3% over the national average.
The Statec report noted that older households spent a much higher proportion of their incomes on care and retirement homes. Those 29 and under were most susceptible to the cost of rent, which represented an average of 15.9% of their household budget, compared to 2.9% for those 65 and older.
Further study
Statec has no immediate plans to publish an updated study on inflation and household income. But the issue appeared to be on the bureau’s radar. Ferring told Delano: “We don’t plan to produce inflation figures based on household income on a regular basis, but another ad hoc publication could be done in the upcoming months, especially with the current price increases for energy products.” That said, for the moment, there are “no concrete plans for such a publication”.