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Wealthiest 10% experience highest inflation over 20 years

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While the wealthiest 10% of households have seen the highest level of inflation over the past 20 years, lower income households have seen the most pain since 2007/8.

Wealthier households – those with an income of over £78,500 per year – tend to devote more to education, holidays and buying homes, which have all seen dramatic price appreciation in the last 20 years. The wealthiest 10% have seen overall inflation of 64% since 1997, according to analysis from wealth manager Tilney.

In comparison, the average income household, with an income of £26,900 – £30,000 p.a. has seen inflation of 50.7%. The lowest income households – with less than £10,400 – have seen costs rise at a rate of 53.8%.

Tilney’s analysis shows that the biggest single factor is housing across all groups. However, there has been a clear difference between the periods pre- and post- the financial crisis. Prior to the recession, soaring house prices contributed to the top 10% experiencing by far the highest rate of inflation. Post-recession, while the top 10% benefitted from a brief drop-off in house prices from 2007-2009, lower income households became the hardest hit, due to the rising cost of utilities and food.

Andy Cowan, head of financial planning at Tilney said: “With economic and political uncertainty likely to be a dominant theme in the coming years, astute financial planning is more important than ever. In this planning process, it’s widely understood that holding too much cash for long-periods of time is a sure way to see the real value of wealth eroded and that any investments must produce inflation-beating returns, to make them worthwhile.

“What fewer people appreciate, however, is that all households experience their own individual rate of inflation and this can vary greatly depending on how the household budget is spent. Those with children in private school will experience a vastly higher rate of inflation, as private school fees have soared four-fold in the last 20 years and show little sign of slowing. In this sense, it’s vital that households plan for a level of inflation that’s appropriate to them.”

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