Inflation at a five year low but long-term inflation for over 50s still higherTuesday 14 October 2014
Saga's new Inflation Report shows that whilst inflation is at a five year low, long term inflation continues to have an impact on older consumers.
Inflation at a five year low but long-term inflation for over 50s still higher
- Consumer Price Index (CPI) annual inflation was 1.2% in September, down from 1.5% in August and the lowest rate since September 2009.
- Retail Price Index (RPI) annual inflation stood at 2.3% in September, down from 2.4% in August.
- The costs of transport, with notable falls in sea and air fares, and the prices of recreation and culture provided the largest downward contributions to the change in the rate. There were no notable upward contributions to the change in the inflation rate this month.
- Given that expenditure patterns vary across households, experienced inflation rates will differ between age bands. We calculate that annual consumer price index (CPI) inflation was as follows for the over 50s age bands in September 2014 (August 2014 figures in brackets):
- 50-64: 1.0% (1.4%)
- 65-74: 0.8% (1.2%)
- 75 and over: 1.2% (1.4%)
- We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in September 2014 (August 2014 figures in brackets):
- 50-64: 1.5% (1.7%)
- 65-74: 1.5% (1.7%)
- 75 and over: 1.6% (1.7%)
- Figures 1 and 2 illustrate the annual rates of inflation for the over-50s. Inflation is currently slightly lower for the over 50s than other age groups due to some easing in essential item inflation. In particular, food prices are currently falling on a year-on-year basis – something which is particularly beneficial to the most vulnerable pensioners (for whom expenditure on food constitutes a significant share of total spending).
- However, over a longer time frame, the over 50s have seen a greater increase in living costs. Between September
- 2007 - when the financial crisis started to really get underway - and September 2014, the cost of living has risen substantially more for the over-50s than for 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 – who had largely or entirely paid off their mortgages – in general failed to benefit from this. Further, the rising cost of essentials such as utilities placed pressure on the living standards of the over 50s. Compared with September 2007, living costs have risen for different age bands as follows:
- 50-64: 25.3%
- 65-74: 27.6%
- 75 and over: 28.7%
- Whole population (RPI): 23.8%
- Despite the less inflationary environment, as the winter months approach and temperatures fall, the costs of the electricity and gas required to heat homes will put pressure on the over 50’s budgets. These costs make up a greater share of expenditure for the over 50s than other age groups and despite some of the major energy providers promising to freeze prices for the rest of the year, the prices of electricity and gas are still currently 5.6% and 5.1% above their level 12 months ago meaning higher household energy bills in the coming months.
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