Tuesday 13 November 2012

• Food prices have increased and with energy price rises in the pipeline inflation will only rise from here • Older generations inflation higher than national average • How can bank justify more expansionary policy without abandoning inflation target?



Commenting on today’s inflation figures, Dr Ros Altmann, Director-General of over-50s specialists Saga says:

“This increase in inflation is further dreadful news for savers as 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. Stagflation is here and set to get worse!

“With energy price rises announced for later this year, we expect inflation to increase even further and, as older people spend a higher proportion of their income on heating their homes, this is likely to have a more negative effect on the cost of living for this demographic.

“Annual food price inflation picked up from 2.0% in September to 3.4% in October. This is a significant problem for all lower income households who spend a much larger proportion of their income on food.

“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 October 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.

“Continuing to pursue expansionary policies will compound an inflation overshoot in coming months meaning it will be impossible for the bank to meet its inflation target. We need new thinking and a more direct stimulus of economic activity.”

Compared with September 2007, the cost of living has risen for different age bands as follows:
o 50-64: 20.4%
o 65-74: 23.7%
o 75 and over: 23.4%
o Whole population (RPI): 18.1%


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 50 age bands in October 2012 (September 2012 figures in brackets):
o 50-64:  2.9% (2.2%)
o 65-74: 2.4% (2.2%)
o 75 and over: 2.5% (2.2%)


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