Tim Pethick, Strategy director for Saga commented “The annual rate for energy and fuel has dropped this month, which is great for all homeowners, and particularly for the over 75s who spend a greater proportion of the expenditure on heating their homes.
“However, continuing price pressures of food and non-alcoholic beverages have not only continued to hold CPI inflation for this age group higher than for the UK as a whole, it has pushed it up again compared to July – working against the benefits of the reduction in fuel price inflation”.
• Consumer Prices Index (CPI) annual inflation fell to 2.7% in August, down from 2.8% in July 2013.
• Retail Prices Index (RPI) annual inflation stood at 3.3% August versus 3.1% in July.
• The largest contributions to the fall in the CPI inflation rate came from came from the transport (particularly motor fuels and air transport) and clothing sectors, partially offset by an upward contribution from furniture, household equipment & maintenance.
• Given that expenditure patterns vary across households, experienced inflation rates will differ across age-bands. We calculate that annual consumer price index (CPI) inflation was as follows for the over 50s age bands in August 2013 (July 2013 figures in brackets):
o 50-64: 2.6% (2.6%)
o 65-74: 2.4% (2.4%)
o 75 and over: 3.1% (3.0%)
• We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in August 2013 (July 2013 figures in brackets):
o 50-64: 3.1% (3.0%)
o 65-74: 3.1% (3.0%)
o 75 and over: 3.2% (3.1%)
• Figures 1 and 2 illustrate the annual rates of inflation for the over 50s. CPI-based inflation is higher for the over-75s than for the UK as a whole and rose this month. As in previous months, this largely reflects high rates of utility price inflation at present. Moreover, annual food and non-alcoholic beverage price inflation rose to 4.1% in August, just up on 3.9% in June. This is higher than overall inflation and is a cost pressure which hits the over 75s relatively hard, given a relatively high proportion of their expenditure consists of foodstuff. In a slight reprieve for older households, which spend a relatively high proportion of their incomes on energy, the annual rate of electricity, gas and other fuel price inflation fell to 7.8% in August, from 8.2% in July, ending a recent upward trend.
• As Figure 4 shows, the cost of living in August 2013, compared with September 2007 – when the financial crisis started to really get underway – has risen substantially more for the over-50s than the overall population, on the broad- based RPI measure of prices. While younger age groups benefitted greatly from falling mortgage interest payments as the Bank of England cut interest rates during the recession, older age groups in general failed to benefit from this. Since September 2007, rising commodity prices have increased the costs of domestic energy usage, a considerable proportion of the over 75s living costs. Compared with September 2007, living costs have risen for different age bands as follows:
o 50-64: 22.9%
o 65-74: 25.2%
o 75 and over: 26.1%
o Whole population (RPI): 20.7%
Figure 1: Saga Prices Indices (CPI-based measures), Consumer Price Index, annual % change
Figure 2: Saga Prices Indices (RPI-based measures), Retail Price Index, annual % change
Figure 3: Saga Prices Indices, Consumer Price Index, % change in cost of living compared with September 2007
Figure 4: Saga Prices Indices, Retail Price Index, % change in cost of living compared with September 2007
Source: ONS, Cebr analysis