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17 August 2016, 01:00

Annual CPI increases in July

Annual Consumer Price (CPI) inflation rose slightly to 0.6% in July 2016, up from the 0.5% recorded in June and the highest level of headline inflation since November 2014.

• The cost of transport once again provided one of the key upward pressures on inflation between June and July. Within this, the largest upward effect came from motor fuels, with prices rising this month compared with falls at the same time a year ago. There was also some upward pressure this month from a 0.5% increase in the cost of alcohol compared with June.

• Annual inflation on the Retail Price Index (RPI) also increased to 1.9% in July, up from the 1.6% recorded in June.

• 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 July 2016 (June 2016 figures in brackets):
o 50-64: 0.3% (0.2%)
o 65-74: 0.1% (0.0%)
o 75 and over: 0.1% (0.1%)

• We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in July 2016 (June 2016 figures in brackets):
o 50-64: 1.1% (0.8%)
o 65-74: 1.0% (0.8%)
o 75 and over: 0.9% (0.7%)

• On CPI-based measures of inflation, those over the age of 65 continue to experience near-zero rates of inflation across their typical basket of goods and services. The difference is largely due to the lower prices of essential items. The cost of food and drink currently sits 2.6% lower than it did at the same point a year ago whilst the prices of gas and vehicle fuels are down 6.6% and 4.3% respectively. Many of these falls are particularly beneficial to the most vulnerable pensioners (for whom expenditure on these items constitutes a more significant share of total spending).

• Between September 2007 - when the financial crisis started to really get underway - and July 2016, the cost of living for those aged 50-64 has risen slightly slower compared with the UK average, on RPI-based measures of inflation which include mortgage interest payments. However, the cost of living has risen by more than the UK average for the over 65s – this group for the most part did not benefit from lower interest rates and mortgage interest payments. Over 65s were also impacted by relatively high levels of food and utility price inflation prior to the UK entering a period of ‘noflation’. Compared with September 2007, living costs have risen for different age bands as follows:
o 50-64: 26.0%
o 65-74: 28.5%
o 75 and over: 28.9%
o Whole population (RPI): 26.6%

• The latest data shows a continuation in the steady upward trend in the rate of inflation seen over the course of 2016. However, with the pound having fallen sharply against a range of key trading currencies in the aftermath of the UK’s referendum on EU membership, some additional inflationary pressure can be expected through into 2017, pushing inflation above the Bank of England’s central 2.0% target. This, combined with the further cut in interest rates announced at the beginning of August, will place additional pressure on many over 50s households.


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