Saga's November inflation release

Tuesday 17 November 2015

Saga's inflation report reveals that inflation is still having a disproportionate impact on older consumers.

Saga's November inflation release

Key points:

 

  • Annual inflation on the Consumer Price Index (CPI) remained in negative territory in October at -0.1%, unchanged from the previous month.  

 

  • The prices of clothing, recreation and culture all rose in October. However, the impact was offset by further falls in the price of food and drink, continuing the trend of negative food inflation seen over the last 18 months. 

  • While headline inflation remained unchanged, annual inflation on the Retail Price Index (RPI) fell slightly to 0.7% compared with the 0.8% recorded in September.

  • 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 October 2015 (September 2015 figures in brackets):
    • 50-64: -0.5% (-0.5%)
    • 65-74: -0.6% (-0.6%)
    • 75 and over: -0.3% (-0.2%)

  • We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in October 2015 (September 2015 figures in brackets):
    • 50-64: -0.1% (-0.1%)
    • 65-74: -0.1% (-0.1%)
    • 75 and over: -0.2% (-0.2%)

  • While the UK economy as a whole experienced only its third month of negative inflation in October, Figure 1 illustrates that the over 50s age group have largely experienced deflation across their typical basket of goods and services since the beginning of the year, largely due to the lower price of essential items. The prices of food, motor fuels and utilities all remain lower than they were a year ago – something that is particularly beneficial to the most vulnerable pensioners (for whom expenditure on these items constitutes a more significant share of total spending).

  • Still, 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 October 2015, the cost of living has risen by 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 or live in social housing –  in general failed to benefit from this. While, this trend has reversed over the past year, inflation across the period remains higher for the over 50s age groups. Compared with September 2007, living costs have risen for different age bands as follows:
    • 50-64: 25.0%
    • 65-74: 27.4%
    • 75 and over: 28.3%
    • Whole population (RPI): 24.8%

  • As the winter months approach and temperatures fall, the costs of the electricity and gas required to heat homes typically put pressure on the over 50s budgets, particularly as prices rise for the winter. However, there seems to be little in the way of price pressures – utilities prices remained broadly unchanged in October. Further, the approaching holiday season tends to see households spend more on vehicle fuel in order to get to the shops to buy presents and visit relatives. As such, households are probably welcoming the further falls in the price of petrol and diesel seen in October.   

 

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