Thanks!
Hello! I work at the IFS. I work on labour and consumption (and inflation) + some stuff on housing and geography.
Thanks! Still figuring this website out...
12/ P.S for those of a technical bent – the paper also contains a discussion of substitution bias, cost of living indices with non-homotheticities and missing goods bias!
11/ A possible reason for this is that cheaper goods are associated with lower profit margins. This means there is less scope for retailers to absorb increases in costs through lower profits, rather than higher prices for consumers.
10/ Instead, we find – looking at fresh products – that the cheapest EU imports went up more in price. Equal cost shocks lead to higher price increases for products at the cheaper end.
9/ To see if cost shocks pass through to cheaper items more generally, we also looked at a cleaner cost shock from the recent past. Around the Brexit referendum, the pound fell sharply against the Euro. We’d expect this to affect the costs of cheap and expensive EU imports equally.
8/ Why might this be? One explanation is that cheaper varieties tend to be associated with lower profit margins giving less scope for suppliers to absorb rising energy prices and labour costs. This would be consistent with the evidence.
7/ If we split products into different 10 levels of “quality” (assuming cheaper products are not as nice as more expensive ones), we see that products in the bottom quality rung saw price increase of 36% compared to 16% for the top quality rung.
