Rising prices are not hitting the rich and poor equally. The price of cheap goods has increased almost twice as fast as their high-end counterparts in recent years, according to a study by researchers affiliated with the Bank of Canada. This inequality, called ” cheapflation ” is observed as much in Canada as elsewhere in the world.
Not only are the wealthiest more resilient than others to price fluctuations, but price increases affect them much less than their poorer counterparts.
The price of “high-end” products increased by an average of 11% between 2020 and 2024. “Low-end” products, on the other hand, saw their value jump by 25% during the same period. In other words, the cost of a grocery basket of low-quality foods increased almost twice as fast as a basket of “premium” products.
Researchers call this phenomenon ” cheapflation “, which could be translated as unequal inflation or two-speed inflation.
To reach this conclusion, the two co-authors analyzed the prices of food and beverages from 91 major retailers in ten Western countries between 2018 and 2024. The gap between the two ends of the inflation spectrum differs from one territory to another, from one calculation method to another, and even Canadian statistics should be taken with a grain of salt. One thing is certain, the inflation gap between luxury goods and ” cheap ” is noticeable everywhere. “Prices of cheaper brands have increased between 1.3 and 1.9 times faster than prices of more expensive brands,” the study says.
Faced with rising prices, several households have decided to turn to lower quality foods in recent years, adds the team of economists. However, choosing industrial eggs instead of free-range eggs, for example, will not have been very profitable in the end. The price of these eggs quickly caught up with the price of these eggs and the quality/price advantage of cheaper products has thus greatly diminished over the past 4 years.
Being poor is expensive
There are several reasons for this disparity between rich and poor in the reduction of purchasing power.
“Cheaper products are more reliant on global supply chains, making them vulnerable to disruptions that put pressure on prices, such as those experienced during the COVID-19 pandemic and the war in Ukraine,” the study says. “In contrast, high-end products are more reliant on research and development and marketing costs, and are often produced in smaller quantities by larger, more productive firms, making them more insulated from the supply disruptions that have affected mass-produced, low-cost products.”
Although the researchers did not break down this contrast for higher-value assets, such as real estate, their study suggests that two-speed inflation is also affecting this sector. cheapflation ” is more important by a few percentage points for the category of goods classified as “non-food”, confirms Oleksiy Kryvtsov, one of the two authors with Alberto Cavallo.