Inflation Hits Pensioners Hardest

Posted on: 17 July 2008 by Gareth Hargreaves

Pensioners are bearing the brunt of surging food prices and rising inflation.

Over 75 year olds continue to be hit the hardest by surging inflation. This age group saw their inflation rate increase from 4.8% to 5.4% in June, according to Alliance Trust’s independent study of age related inflation.

This is the highest level inflation has reached in the six years that the study has been conducted.

Inflation rates facing all other age groups have also increased and the majority are running ahead of the official headline rate of inflation of 3.8%. This month marked the first time that 30 to 49 year olds have faced an inflation rate in excess of 4%. It stands at 4.2%, increasing to 4.7% for 50 to 64 year olds and 4.9% for 65 to 74 year olds.

Inflation continues to be driven by sharply rising basic goods prices.

Over 75 year olds bear the brunt of surging food prices, which have risen by almost 11% over the last year. We've all noticed the cost of filling the shopping trolley creep up, and this hits the over 75 year olds hardest as they allocate 16% of their household budget to food compared to less than 9% for the under 30 households.

Within this, dairy prices have risen over 19% and oil and fat prices are up over 28%.

In each of these categories the over 75 year olds allocate almost double the proportion of their household budgets when compared to the younger households.

Over 75 year olds are also hit hardest by higher electricity and gas prices which rose 11% and 10% respectively. This age group spends almost 7% of their budget on electricity and gas bills whereas the under 30 households spend just 3% on such utilities.

In contrast, younger generations spend a higher proportion of their incomes on clothing, footwear and audio-visual goods, where prices are continuing to fall. This benefits the under 30s who spend 6% of their budget on clothing, almost double the amount allocated by the over 75 year olds. This is reflected by the fact that their inflation rate is running in line with the official rate of inflation of 3.8%.

New research from Clerical Medical also shows that pensioners have seen the general price level of the goods and services they purchase rise by 36% in the last ten years, faster than the increase in Retail Price Inflation at 32%. This is also reflected over the past five years, with pensioners seeing a rise of 20% compared with an 18% increase in Retail Price Inflation.

In addition, rising housing costs have been central to increasing pensioner inflation in the past decade, with a 69% rise, according to the Clerical Medical research. Increases in council tax of 89% and repairs and maintenance of 84% were the key factors behind the rise in housing costs.

Housing is the largest single expense facing pensioners, accounting for an average 25% of all expenditure at £63.65 a week. Housing represents a slightly smaller proportion of expenditure for pensioners compared to all households at 27%.

Alliance Trust Research Centre warns that rising prices for basic goods could push inflation even higher over the next few months, forcing the authorities to leave interest rates higher for longer.

"Unfortunately, we expect little respite from this situation over the next couple of months as the oil price is expected to remain high and gas and electricity prices are expected to move higher," says Shona Dobbie, Head of the Alliance Trust Research Centre.

"This means that headline inflation is likely to rise a bit further in the next few months."

"The danger is that this high level of inflation forces policy makers to leave interest rates higher for longer, increasing the risk of an even greater slowdown in demand and threatening the economy as a whole."

Are you or your family being hit by the credit crunch and having to cut back? Do you have any tips on reducing your bills? You can share your experiences or advice in the comment box or 50connect forum.

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