News

Key points:

• Annual Consumer Price inflation rose sharply to 1.8% in January 2016, another significant increase, having stood at 1.6% in December. CPI is now at its highest level since June 2014.

• The main drivers of this increase in CPI were higher prices for motor fuels and food, offset partially by prices for clothing and footwear.

• Annual inflation on the Retail Price Index (RPI) rose to 2.6% in January, having stood at 2.5% in December.

• As expenditure patterns vary across households, inflation rates differ between age bands. We account for these differences, and calculate inflation by age band based on typical expenditure.

We calculate that annual Consumer Price Index (CPI) inflation was as follows for the over 50s age bands in January 2017 (December 2016 figures in brackets):

• 50-64: 1.7% (1.3%)
• 65-74: 1.4% (1.1%)
• 75 and over: 1.2% (1.0%)

We calculate that annual Retail Price Index (RPI) inflation was as follows for the over 50s age bands in January 2017 (December 2016 figures in brackets):

• 50-64: 2.3% (2.1%)
• 65-74: 2.4% (2.2%)
• 75 and over: 2.2% (2.0%)

• Inflation continued its sharp ascent in January, as the slump in the pound and higher oil prices are driving up consumer prices. CPI Inflation now sits just 0.2 percentage points below the Bank of England’s 2% target.

• Since the UK’s vote to leave the EU, the pound has fallen in value by about 12%. This has led to spiralling producer prices as factory inputs become more expensive (higher oil costs also contribute to this).

• Such price pressures have been reflected in this month’s inflation figures. Prices for goods and services across all categories, except for food and drinks[1], were higher in January 2017 than they were in the same month a year earlier.

• Increasing motor fuel prices were again a key driver of higher inflation in January. Following OPEC’s agreed oil production cuts, the price of oil has risen sharply, and continues to push consumer price inflation upwards. In January, prices for liquid fuels increased 56.8% on the same month a year earlier.

• Such inflation has been felt by the over 50s as their typical basket of goods consumed has seen some significant price increases. Overall, CPI is now at its highest level since 2014 for all age brackets of the over 50s.

• CPI has historically been lower for all ages brackets of the over 50s than for than average of all ages, but in January CPI for the 50-64 age bracket stood above the UK average. This was due to increase in prices for fuels, which rose 56.8% year-on-year, transport, which rose 5.8%, restaurants and cafes, increasing 2.6%.

• Between January 2008 – near the start of the financial crisis – and January 2017, the cost of living for those aged 50-64 has risen at a slightly slower rate than the UK average, on RPI-based measures of inflation which include mortgage interest payments. However, for those aged over 65, who did not benefit from lower interest rates and mortgage interest payments, inflation has been higher than for the average citizen. Furthermore, over 65s were also particularly impacted by increases in food and utility prices prior to the UK entering a period of ‘noflation’.

Compared with January 2008, living costs have risen for different age bands as follows:

• 50-64: 26.5%
• 65-74: 29.5%
• 75 and over: 29.5%
• Whole population (RPI): 26.5%

• Given the upward price pressures of the weaker pound and higher oil prices, we expect inflation to rise further during 2017. Cebr expects CPI inflation for all ages to average 2.6% in quarter one of 2017.