Inflation Rates
Posted in Demographics, Economics, Trade on July 28th, 2008 by sam – Be the first to commentSince the mid-1980s, workers at the bottom of the wage scale have seen their incomes fall relative to those at the top. However, a recent research paper (”Inequality and Prices.” Pdf file here), by Christian Broda and John Romalis, argues that standard measures of inequality do not reflect differences in the inflation rates faced by the rich and the poor. For most of the past three decades, the price of non-durable goods (on which the poor spend relatively more) has been falling relative to the price of the services (investment advice, personal care, domestic help, etc) that the rich spend more of their money on.
The authors constructed price indices for 12 income groups, using official figures and detailed private information on the spending habits of different households. This data set, created by shoppers themselves using in-store scanners, records the type and prices of goods bought by various income groups between 1994 and 2005.
The share of non-durable spending for the very poorest households was 12 percentage points higher than for the richest.
One standard measure compares the income of a household just below the top 10% of earners with one just above the bottom 10%. The richer household earned 10.6 times more than the poorer one in 1994; that multiple rose to 11.2 in 2005. The researchers calculate that around two-thirds of this increase was offset by the poor’s lower inflation rate. (The researchers found a similar result when they extend their analysis back to 1984.) Also, the range of goods consumed by poor households increased by far more than for rich households. If the gain in variety is quantified & expressed as an addition to real income, the remaining increase in inequality vanishes.
The authors matched their figures on non-durable spending with equally detailed import data, and calculated that imports from China alone offset more than a quarter of the measured rise in income inequality since 1994.


