Is Inflation Heterogeneously Distributed Among Income Groups?

Inflation rates of more than 3% in Germany during some months in the spring and summer of 2008 have been giving rise to claims from both politicians and the unions for social measures for welfare recipients. It is argued that the burden of inflation is heterogeneously distributed among different income groups. The reasoning behind this perception is that prices for food and energy increased disproportionately at that time and that low income households spend more on these goods in relative terms. We analyse data at the lowest level of aggregation publicly available (four-digit COICOP positions) taken from the most recent German sample survey of household income and expenditure in order to calculate income group specific price indices. Households' net income is divided into 13 groups ranging from less than €1,000 to more than €7,000. Numerous studies have found widely different inflation rates for different socio-economic groups. Although we find some variation, for the price indices as well as for the weighting schemes, the general inflation trend is almost the same, irrespective of the household's net income.