UK’s richest to face lowest inflation squeeze

The impact of soaring inflation on the richest will be almost half as severe as on the poorest, according to analysis from the UK's leading economic research institute.

Data from the Office for National Statistics (ONS) on Wednesday revealed that consumer prices index inflation (CPI) hit 10.1% last month amid the worsening cost-of-living crisis.

Increases in the cost of essentials like food and basic toiletries are partly behind the increases, the ONS has said. The bulk of inflation is being driven by energy bills.

The spike is higher than anticipated, with estimates suggesting the number could soar to 13.3% in October.

Read more: UK’s richest 1% of earners are only group not to see real pay cut

However, rising inflation is not affecting all households equally.

Analysis from the Institute for Fiscal Studies (IFS) has found the poorest 20% are facing inflation of 17.6% by October. In contrast, the richest 20% are facing inflation of 10.9%.

"We're looking at 1970s style, inflation going up to 13 or 14%," Paul Johnson, director of the IFS, told TalkTV on Wednesday.

He added: "It clearly is a big, big issue for people on relatively low incomes... they will be facing higher inflation because they spend more of their income on energy and food.

"So, we reckon that inflation for poor households will be 18% in a couple of months time."

Separate figures from the Office for National Statistics (ONS) show that households on the lowest incomes are already facing higher inflation.

Read more: Inflation: Bank of England likely to raise interest rates by 0.5% again

ONS analysis of CPI including housing costs (CPIH) has also found inflation hit 9.9% in July for the poorest 10% of UK households. For the wealthiest 10%, inflation reached 7.7%.

Why is inflation hitting the poorest hardest?

Households on the lowest incomes spend a higher proportion of their money on essentials like food and energy, which have seen the steepest increases in prices.

According to the most recent estimates by experts, the price cap will reach close to £3,640 in October, with energy consultancy Auxilione warning it may rise to £4,722 in January before hitting £5,601 in April.

“A wide range of price rises drove inflation up again this month," said ONS chief economist, Grant Fitzner, on Wednesday.

“Food prices rose notably, particularly bakery products, dairy, meat and vegetables, which was also reflected in higher takeaway prices.

“Price rises in other staple items, such as pet food, toilet rolls, toothbrushes and deodorants also pushed up inflation in July."

Labour has called on the government to tackle rising inflation urgently, in part by controlling soaring energy bills.

Read more: The UK's most popular side hustles – and tips for starting your own

“We must get a grip on rising inflation leaving families worried sick about making ends meet," said shadow chancellor, Rachel Reeves.

“Labour’s fully-costed plan to freeze the energy price cap will bring inflation down this winter, easing the burden on households and businesses."

However, the government has insisted it is acting to tackle the soaring cost of living.

“I understand that times are tough, and people are worried about increases in prices that countries around the world are facing," said chancellor Nadhim Zahawi.

He added: “Getting inflation under control is my top priority, and we are taking action through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost productivity and growth.”

Watch: Struggling households face more pressure as cost of living rises 10.1% in July