A remarkable tale of a zero-sum that is not a zero-sum illustrates how many of our choices have an ethical dimension we are unaware of
Inflation is at eye-watering levels. An entire generation has never experienced anything like it. The price of almost everything we buy becomes goes up, and our incomes struggle to keep pace with the increases. We are all in the same boat. Or are we?
One of the criticisms of the typical retail or consumer price indices used to establish inflation, is that they do not accurately reflect what people buy. This is a fair challenge. The monthly shopping of a household consisting of a single 75-year-old pensioner is likely to be rather different from that of a young family with two toddlers. Even between households of the same type, consumption patterns may be quite different. Strictly speaking, we all have our personal price index and our own personal inflation figure. (And if what we buy varies month-on-month, then it’s more complicated still!)
More than one inflation figure
The heterogeneity of a population’s consumption cannot possibly be fully reflected in the index (and hence in the inflation figure). But might such a single inflation figure conceal significant differences between equivalent households in different income bands?
This is sometimes argued. Poorer households, regardless of composition, spend relatively higher proportions of their income on categories like energy and food, and a much smaller fraction on more expensive products like electronics. Such costly items tend to become cheaper, even during inflationary periods, and contribute to a headline inflation figure that is then lower than cost-of-living increases experienced by low-income households, who generally don’t benefit from price drops in HD televisions or pricey tablets.
In November 2021, the UK’s Institute for Fiscal Studies examined how price increases might affect low- and high-income households differently. For example, households in the bottom income decile spend proportionally…