Rich-Poor Spending Gap Narrows

EghtesadOnline: The spending gap between the richest and the poorest narrowed in the last Iranian year (March 2019-20), data from the Statistical Center of Iran show.

News ID: ۷۵۰۴۹۰

21 July 2020

Individuals in the top 10% of income earners spent 13.69 times as much as those in the bottom 10% income strata.

The SCI data also show individuals in the top 20% and top 40% of the income distribution spectrum spent 7.97 and 4.25 times as much as those in the corresponding group of low-income people, respectively.

In the year ending March 2019, the top 10% of income earners spent 14.45 times as much as those in the bottom 10% while the top 20% and 40% of the income distribution spectrum spent 8.36 and 4.41 times as much as those in the corresponding group of low-income people, respectively.

According to SCI, three trends could be discerned in the comparative study of spending inequalities over the past 19 years since the fiscal 2001-02.

Between the years ending March 2002 and 2008, the spending gap between the richest and poorest 10%, manifested as dividing the former by the latter, grew from 16.43 to 17.59—the highest level posted in 19 years. A downtrend started in the fiscal 2008-09 until 2013-14 (from 15.79 to 10.68).

The implementation of welfare measures such as Targeted Subsidies Law, which authorized the reduction of subsidies on food and energy, and allowed the payment of 455,000 rials to each and every Iranian on a monthly basis, could have contributed to the shrinkage of spending inequality during those years.

The spending gap between the richest and the poorest resumed its upward movement since the year ending March 2015 up until the year ending March 2019 from 12.33 to 14.45.

Last year (March 2019-20), the gap narrowed to 13.69. Notably, the taming inflation of the years between March 2015 and 2018 did not buck the trend.

Spending inequality between individuals in the top and bottom 20% and 40% of the income distribution spectrum followed the same trajectory.

The spending gap between the top 20% of income distribution and the bottom 20% grew from 9.61 to 10.04 between the years 2001-7. However, the widest and narrowest spending gaps posted during 19 years were in the fiscal 2006-07 and 2013-14, with 10.04 and 6.57 respectively.

The spending gap resumed its upward movement from the year ending March 2015 until the year ending March 20, 2019, from 7.26 to 8.36. Last year, the spending gap narrowed to 7.97.

The spending disparity between individuals in the top and bottom 40% of the income distribution has been the widest (5.09) in the year ending 2007 and narrowest (3.71) in the year leading to March 2014.

Share of Expenditure

In another data set, SCI has surveyed household expenditure as a percentage of total expenditure by income deciles.

Income deciles are groupings that result from ranking either all households or all persons in the population in the ascending order based on income, and then dividing the population into 10 groups, each comprising approximately 10% of the estimated population.

The richest decile of Iranian households represented 31.69% and the poorest 10% accounted for 2.31% of all expenditures last year (March 2019-20).

The distribution of household expenditure was even more disproportionate in the year ending March 2019, with the richest 10% representing 32.5% and the poorest 10% accounting for 2.25% of all expenditures.

The share of the richest 10% from the total gross expenditure stood at 31.3% and that of the poorest was 2.29% in the year ending March 2018.

The year ending March 2008 saw the smallest share of spending for the poorest in 19 years; they accounted for as little as 1.92% of total spending of Iranian households compared to the 33.83% share of the richest.

The highest share of spending of total expenditure of Iranian households for the richest decile was recorded in the year ending March 2002 with 33.94%.

In the year ending March 2013, the richest 10% constituted 28.94% of total expenditure of the country’s households, the smallest proportion in 19 years.

In the last fiscal year, the poorest 20% of Iranian population represented 5.96% of all expenditures by income deciles compared with 5.8% of the year before (March 2018-19).

Over the past 19 years, the highest share of expenditure as a fraction of total expenditure was recorded in the year ending March 2014 with 6.79% and the lowest was posted in the year ending March 2007 with 5%.

Gini Index

Iran's Gini Index in the last fiscal year (March 2019-20) stood at 0.3992 compared with the previous year’s 0.409, indicating a 2.47% decline.

The Gini Coefficient ranks income inequality on a scale of zero—no inequality—to one, the maximum level of inequality. In other words, the closer the number to one, the more wealth is concentrated in the hands of fewer people, thus the bigger income disparity. Because of the way the scale is constructed, a modest-sounding difference in the Gini ratio implies a big difference in inequality.

Over the past 19 years (since the year ending March 2002), the year ending March 2007 saw the highest Gini Coefficient with 0.435 and the year ending March 2014 witnessed the lowest Gini Coefficient with 0.365.

Inflation Gap

The average annual inflation gap measured by SCI among income deciles stood at 4.2% in the third month of the current Iranian year (May 21-June 20, 2020), indicating a 0.3 percentage point increase compared with the previous month.

The inflation gap in “food, beverages and tobacco” group among income deciles decreased by 0.8 percentage point and that of “non-food and services” group dropped by 0.4 percentage point month-on-month.

The average goods and services Consumer Price Index in the 12-month period ending June 20 increased by 25.8% for the first decile (those with the lowest income) while it grew 30% for the 10th decile (those with the highest income).

Average inflation rates grew by 26.5% for the second decile compared with last year’s corresponding period; 26.7% for the third decile; 26.9% for the fourth decile; 27.1% for the fifth decile; 27.3% for the sixth decile; 27.7% for seventh decile; 28% for eighth decile and 28.7% for the ninth decile.

The highest overall CPI (using the Iranian year to March 2017 as the base year) stood at 226.7 for the 10th decile and the lowest calculated was 206.8 for the first decile.

The year-on-year inflation rates increased by 19% for the first decile during the month under review, 20% for second, 20.5% for third, 20.8% for fourth, 21.1% for fifth, 21.6% for sixth, 22.3% for seventh, 23% for eighth, 24.2% for ninth and 26.6% for the 10th decile.

The overall average goods and services Consumer Price Index in the 12-month period ending June 20, which marks the end of the third Iranian month, increased by 27.8% compared with the corresponding period of last year, latest data released by the Statistical Center of Iran show.

SCI had put the average annual inflation rate for the preceding Iranian month, which ended on May 20, at 29.8%.

The consumer inflation for the month under review (May 21-June 20, 2020) registered a year-on-year increase of 22.5% compared with the similar month of previous Iranian year. The year-on-year inflation of the month ending May 20 was at 21%.

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 214.2 for the month, indicating a 2% rise compared with the month before.

CPI registered a year-on-year increase of 22.7% for urban areas and 21.1% for rural areas in the month ending June 20.

The overall CPI reached 212.8 for urban households and 221.9 for rural households, indicating a month-on-month increase of 2% and 2.2% for urban and rural areas, respectively.

SCI put average annual inflation for urban and rural areas at 27.7% and 28.2% respectively.

The highest and lowest monthly growth in the index among 12 groups of the basket of consumer goods and services purchased by households in the Iranian month ending June 20 was recorded for “leisure and culture” and “education” with 3.6% and 0.3%, respectively.

The highest and lowest year-on-year inflation in the month ending June 20 was posted for transportation with 48.6% and communications with 7% and the highest and lowest average annual inflation was registered for transportation with 45.1% and communications with 8.7% respectively.

With a coefficient of 26.64%, the CPI of food and beverage stood at 248.4 in the month ending June 20, indicating a 2.4% increase compared with the month before.

The food and beverage index registered a year-on-year increase of 14.9%. In the 12-month period ending June 20, it increased by 27.4% compared with last year’s corresponding period.