Inflation remaining at 2.7% damages economic growth

By Dr Ros Altmann , Tuesday 18 December 2012

Inflation that is still above the Bank of England’s 2% inflation target is dreadful for savers, warns pensions expert Dr Ros Altmann.
Inflation graphInflation remaining at 2.7% damages economic growth, warns Dr Ros Altmann

The combination of low interest rates and high inflation has had disastrous effects on disposable incomes and the spending power of millions of households which means monetary policy has actually damaged significant parts of the economy.

Annual food price inflation picked up from 3.4% in September to 3.9% in October. This is a significant problem for many older people and lower income households who spend a much larger proportion of their income on food and with energy price increases in the pipeline the pressures on these groups will get worse.

This week, Saga’s final Quarterly Report of the year revealed that inflation expectations among the over 50s have risen this quarter, which is something that policymakers should be concerned about as older people continue to cut back on their spending.

The latest suggestions from our next Bank of England Governor to abandon an inflation target would be a very dangerous move as inflation is damaging growth through its impact on spending. Our reports show that each quarter, older people are cutting back on their spending as a result of high inflation.

Inflation on both the RPI and CPI measures remains higher for over 50s compared with the UK as a whole according to our Saga Price Indices, compiled by research house Cebr. Indeed, the cost of living in November 2012, compared with five years ago in September 2007 has risen substantially more for the over-50s than the overall population. Older people are not generally benefitting from a lower real value of debts or lower mortgage rates. They are often on a fixed income or trying to live off their savings and finding that inflation is eroding their spending power.


The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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