2008 August 23 Saturday
UK Inflation Rate Higher For Students

Economists frequently speak of a single inflation rate for an entire nation. Other times they distinguish between inflation rates in different parts of a country. But inflation rates are really more meaningful by social class and age. In Britain inflation for students is 1.5 times that for the general population because more of a student's budget goes for goods with high inflation rates.

The first Student Price Index survey, from the Open University, found that the true inflation rate for undergraduates in England is almost 7%, compared to the Consumer Price Index which currently stands at 4.4%.

This is because, compared with other households, students spend a higher share of their total budget on items which have risen in price fastest over recent years - goods such as food and drink, clothing, tobacco, personal care products, housing and travel, plus tuition fees.

Students spend 75% of their budget on these items altogether, compared to just over 50% for the average UK household. Overall, their living costs are rising at 1.5 times the rate of that of the general population, it found.

Students are (with the exception of tuition and books) more like the permanently poor in their spending since they are, at least temporarily, poor. So this result tells that poor people are probably experiencing an inflation rate far higher than middle class and upper class people are experiencing. This isn't surprising when you think about it. Food costs are rising rapidly and food makes up a much higher percentage of the income of the poor than of the rich. Ditto for some other basics which are rising faster in costs.

You might think that this result is just due to rising tuition costs. But no. Housing, food, and travel together are going up 12.8% in Britain.

These include tobacco, housing, travel, clothing and food and drink, which the Bank of England has calculated is rising at 12.8 per cent annually.

Home computers and other electronic gadgets aren't going up much, if at all, in price. Ditto many luxury goods. New housing prices are actually declining. So if you have a lot of cash to spend on the good life your biggest inflation hits are going to be from gasoline and airplane tickets. But if you are poor you are getting hit a lot harder.

So then is effective inequality increasing? Maybe not. The downturn in stocks and corporate profits mean that many of the wealthier folks are losing ground in net worths. Also, the middle and upper classes have houses which are going down in value. But my guess is that poorer people are experiencing a bigger drop in living standards.

Update: Some things are dropping in price (this is a measure in the US).

The consumer price index for durable goods ó things like furniture and cars ó is down 0.8 percent over the last 12 months. Thatís not an aberration either; it has been down year-over-year in every month since late 2005. Whatís more, that may understate the deflation.

So if you can afford to pay for the food and gasoline it is a great time to buy furniture and cars.

But as prices in New York City demonstrate, if food is a big part of your budget then you are hurting.

In the past year, grocery prices in the metropolitan area have risen 7.3 percent, the biggest increase in any 12-month period since 1990, Mr. Dolfman said. Prices of a range of foods, including seafood, apples, potatoes and snacks, rose by 0.8 percent from June to July alone.

Electricity, natural gas, and gasoline are all rising rapidly. So the plasma TV gets cheaper as the electricity to power it goes up.

Adjusted for inflation real earnings in the US dropped 3.1% in the last year.

After adjusting for inflation, the average weekly paycheck dropped by 0.8 percent in July from June, extending an ongoing slide in real income. That left real earnings 3.1 percent lower in July than they were a year ago.

But how is that earnings drop distributed? Whose earnings are declining the most and whose the least? Which occupations are hit the hardest?

Share |      By Randall Parker at 2008 August 23 09:20 PM  Economics Living Standards


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