14 May 2016, 01:00

May inflation index shows inflation lower in part due to caps on social housing rents

Saga's latest inflation report shows that reductions in air-fairs after easter and the impact of the cap on social housing rents has restuled in lower inflation.

Saga Inflation Report – April 2016 bulletin

Key points:

  • After rising to 0.5% in March, annual Consumer Price (CPI) inflation fell back to 0.3% in April as seasonal effects of this year’s early Easter holiday fell out of the comparison.
  • The main downward contributions to inflation came from falls in air fares, clothing prices and the cost of vehicles. Reductions in social housing rent also provided a downward impact on the overall rate of inflation.
  • These downward effects were partially offset by rising prices for vehicle fuels and the costs of certain recreational goods and cultural services.
  • In line with the headline rate, annual inflation on the Retail Price Index (RPI) also fell, down to 1.3% from the 1.6% recorded in March.
  • 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 April 2016 (March 2016 figures in brackets):
    • 50-64: 0.0% (0.1%)
    • 65-74: -0.2% (-0.1%)
    • 75 and over: 0.0% (0.0%)
  • We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in April 2016 (March 2016 figures in brackets):
    • 50-64: 0.5% (0.7%)
    • 65-74: 0.5% (0.6%)
    • 75 and over: 0.4% (0.4%)
  • On CPI-based measures of inflation the over 50s continue to experience either ‘noflation’ or deflation across their typical basket of goods and services. The difference is largely due to the lower prices of essential items. The 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 April 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: 25.4%
    • 65-74: 28.1%
    • 75 and over: 28.6%
    • Whole population (RPI): 25.7%
  • Overall, the latest inflation data continue to paint a bright outlook for the over 50s. The reductions in social housing rents introduced at the beginning of April have been particularly beneficial for households over the age of 65. According to the last census, 18.8% of households over the age of 65 lived in social rented accommodation compared with 17.6% of the population as a whole.



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