News

Saga Inflation Report – August 2016 bulletin

Key points:

• Annual Consumer Price (CPI) inflation held steady at 0.6% in August 2016.
• In a change to recent trends, rising food prices provided one of the main upward contributions to inflation this month, alongside continued pressure from the cost of transport. However, this was offset by falls in hotel rates and downward pressure from the prices of alcohol and clothing.

In contrast with the headline CPI measure, annual inflation on the Retail Price Index (RPI) dropped back slightly from the 1.9% recorded in July to 1.8% in August.

• 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 August 2016 (July 2016 figures in brackets):
  • 50-64: 0.4% (0.3%)
  • 65-74: 0.2% (0.1%)
  • 75 and over: 0.2% (0.1%)

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

• On CPI-based measures of inflation, inflation for the over 50s has gradually begun to creep above the near-zero rates seen across their typical basket of goods and services since 2015. However, inflation for this demographic remains below the headline rate. The difference is largely due to the lower prices of essential items. The cost of food and drink currently sits 2.2% lower than it did at the same point a year ago whilst the prices of gas and vehicle fuels are down 6.6% and 2.6% 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 August 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:
  • 50-64: 26.3%
  • 65-74: 28.8%
  • 75 and over: 29.4%
  • Whole population (RPI): 27.1%

• Despite the sharp fall in the value of the pound since the result of the UK’s referendum on EU membership, the latest inflation data shows little immediate impact on price levels across the economy. The data shows that raw material costs have now risen for two straight months, in part the result of higher import prices. However, with competition across the retail sector remaining fierce, there is little sign of this feeding into consumer prices at this stage. However, inflation is still widely expected to rise as we move into 2017, placing more notable pressure on the budgets of over 50s households.

Ends