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19 July 2016, 01:00
Annual CPI increases in June
Annual Consumer Price (CPI) inflation rose to 0.5% in June 2016, up from the 0.3% recorded through much of the year to date.
- Increases in air fares, the cost of motor fuels and a range of recreational and cultural goods and services provided the main upward contributions to inflation in June.
- Annual inflation on the Retail Price Index (RPI) also increased to 1.6% in June, up from the 1.4% recorded in May.
- 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 June 2016 (May 2016 figures in brackets):
- 50-64: 0.2% (0.0%)
- 65-74: 0.0% (-0.2%)
- 75 and over: 0.1% (0.0%)
- We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in June 2016 (May 2016 figures in brackets):
- 50-64: 0.8% (0.6%)
- 65-74: 0.8% (0.6%)
- 75 and over: 0.7% (0.5%)
- On CPI-based measures of inflation the over 50s continue to experience either near-zero or negative inflation across their typical basket of goods and services. The difference is largely due to the lower prices of essential items. 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).
- Between September 2007 - when the financial crisis started to really get underway - and June 2016, the cost of living for those aged 50-64 has been broadly in line with the UK average, on RPI-based measures of inflation which include mortgage interest payments. 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:
- 50-64: 26.1%
- 65-74: 28.7%
- 75 and over: 29.0%
- Whole population (RPI): 26.5%
- Given some slight recovery in the price of commodities such as crude oil since the beginning of the year, inflation was expected to start to recover over the second half of 2016. However, with the pound seeing a notable depreciation against a range of key trading currencies in the weeks that have followed the UK’s referendum on EU membership, further pressures on inflation are expected over this period. As such, inflation could recover towards its 2% target as early as the end of 2016.
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