As we have reported in the past, inflation affects you differently according to your income. The Institute of Applied Economics Research (Ipea) has published a study showing that poorer Brazilians are hit harder by inflation than the rich. In an eleven year period, July 2006 to October 2017, the inflation rate for the lower income group was 102 percent. For the top income level, the inflation rate was 86 percent.
Usually, economic research uses income as an indicator to measure how well (or poorly) citizens are doing. But, the paper “The evolution of average yields using deflators by income bracket” shows that different groups of workers have different consumption habits and that needs to be taken into account when publishing economic data. The study shows that prices can vary significantly for long periods of time when the consumption patterns of each income group are factored into the calculations.
Two main indicators were used to measure the impact of the rise in prices on income: the Consumer Price Index (IPCA) and the Ipea Inflation Indicator on Income Groups. The former shows a general picture in which deflation has a homogenous impact on all Brazilians. But the latter paints a more detailed portrait of each income group, revealing specificities masked by the general trends.
Income brackets 1 and 6: medium working income deflated by the Ipea Indicator and IPCA
Another finding was that the proportion of households located in the lowest income bracket rose from 28.6 percent in 2016 to 30.3 in 2017. At the same time, the proportion of families in the low and medium-low brackets fell: from 19.3 to 17.9 percent and from 21.4 to 21 percent, respectively. Other income brackets remained stable in 2016 and 2017.
The study also offered a glimpse of income inequality in Brazil. In 2017, the richest 10 percent had an income 17 times higher than the poorest 30 percent. This rate was even higher when the richest 3 percent were compared to the lower income group. Until 2015, inequality in labor income was diminishing, according to the Gini index. But it has been rising since then, especially when other income sources are added in the calculations.
The study shows that it is necessary to have more precise measurements of inequality in terms of inflation and its impact on income. That will allow for public policies that are more precise and can help mitigate inequality, says José Ronaldo de Castro Souza Júnior, director of Ipea and one of the authors of the study.