Inflation 'is worse' for UK's richest and poorest

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Britain's richest and poorest people are suffering the steepest rises in the costs of living, new research shows.

Headline inflation is running well above the target - but those at either end of the wealth spectrum are being squeezed by a still higher rate of price rises, according to new research from accountants PwC.

Inflation as measured by the consumer prices index (CPI (Berlin: CEJ.BE - news) ) has ticked back up to 2.7pc , statisticians reported last week, further away from the Bank of England’s 2pc target.

However, spending habits are increasing the burden further for certain income groups, said PwC.

The richest 10pc of households are experiencing an inflation rate of nearly 3pc, due to their greater exposure to October’s near trebling in university tuition fees, its researchers calculated. After the Government lifted the fee cap to £9,000, education costs overall rose a record 19.1pc between September and October.

Meanwhile the poorest households - the 10pc with the lowest income - face the second highest inflation rate at 2.8pc, due to increased prices for essentials such as food and water, which eat up a biggest share of their spending compared to other groups.

Global (Chicago Options: ^RJSGTRUSD - news) food prices are expected to rise further due the impact of a prolonged drought in the US which decimated crops, exacerbating the impact of long-term trends such as population growth and changing diets.

However, for high earners who have not been affected by education costs, the picture is brighter.

Once the tuition fees rise and other education costs are stripped out, the inflation rate falls back markedly for the richest Britons, almost at the target at 2.1pc.

The poorest, however, are the hardest hit. They see an inflation rate of around 2.5pc, as prices for education are not driving the squeeze on their household incomes.

John Hawksworth, chief economist at PwC, said: “This continues the pattern of most recent years in which rises in global commodity prices for essential products have had a proportionately greater impact on the poorest households, intensifying the squeeze on their real incomes from the economic downturn.”

Looking ahead, the headline inflation rate is expected to rise further as energy companies increase their bills.