20 January 2016, 00:00
Saga Inflation Report shows costs over the long term still higher for older consumers
Saga's latest inflation figures show that over the long terms costs for older consumers remains consistently higher than the population as a whole.
Annual Consumer Price (CPI) inflation rose marginally in December, standing at 0.2% compared with the 0.1% recorded in November.
- The slight increase in inflation reflects upward pressure from transport prices, which rose by 1.8% between November and December in contrast with the fall in prices between the same two months a year ago. The upward effect came principally from air fares, which saw the largest November to December price increase since 2002.
- In line with the headline rate, annual inflation on the Retail Price Index (RPI) also rose, hitting 1.2% compared with the 1.1% recorded in November.
- 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 December 2015 (November 2015 figures in brackets):
- 50-64: -0.1% (-0.2%)
- 65-74: -0.3% (-0.3%)
- 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 December 2015 (November 2015 figures in brackets):
- 50-64: 0.3% (0.2%)
- 65-74: 0.2% (0.2%)
- 75 and over: 0.0% (0.1%)
- While the UK economy as a whole has seen inflation sitting just above zero in the past two months, Figure 1 illustrates that the over 50s age group have mostly experienced deflation across their typical basket of goods and services since the beginning of the year, 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).
- Still, over a longer time frame, the over 50s have seen a greater increase in living costs. Between September 2007 - when the financial crisis started to really get underway - and December 2015, the cost of living has risen by more for the over-50s than for the overall population on the broad-based RPI measure of prices. While younger age groups benefitted greatly from falling mortgage interest payments as the Bank of England cut interest rates during the recession, older age groups – who had largely or entirely paid off their mortgages or live in social housing – in general failed to benefit from this. While, this trend has now reversed for those aged 50-64 have seen rates similar to the population as a whole, inflation across the period remains higher for many of those aged 65 and over. Compared with September 2007, living costs have risen for different age bands as follows:
- 50-64: 24.8%
- 65-74: 27.7%
- 75 and over: 28.9%
- Whole population (RPI): 25.3%
- While inflation rose again in December, the prices of key household essentials such as food and vehicle fuel continued to decline. Petrol prices fell by 3.4 pence per litre between November and December, while food and beverage prices were down by 0.2%. Continued falls in these household staples is helping people to free-up more money to spend on things such as dining out and home improvements.