Price Changes and Income Distribution

Abstract

The official Index of Retail Prices measures changes in the total cost of the basket of goods and services purchased by the average household, but the composition of this basket varies significantly with size of household income. The relative amounts spent between 1956 and 1966 on the various types of goods and services are estimated for particular points on the scale of household income. The results suggest that over this period those at the lower end of the income scale have experienced greater price increases than those at the upper end, thus increasing the inequality of the distribution of real income. It also appears that differences in rates of inflation between income classes become larger as income decreases. An analysis with more detailed data should be undertaken to obtain more precise results.