News

Saga Inflation Report – May 2016 bulletin

Key points:

• After falling to 0.3% in April, annual Consumer Price (CPI) inflation remained unchanged in May 2016, continuing the picture for inflation just above zero that has been seen for much of the year.
• Transport costs, restaurant and hotel bills and the price of telecoms services all provided upward pressure in May. However, these were offset by falls in the price of clothing, food and games, toys and hobbies.
• Annual inflation on the Retail Price Index (RPI) rose marginally to 1.4% in May, up from the 1.3% recorded in April.
• 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 May 2016 (April 2016 figures in brackets):
  • 50-64: 0.0% (0.0%)
  • 65-74: -0.2% (-0.2%)
  • 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 May 2016 (April 2016 figures in brackets):
  • 50-64: 0.6% (0.5%)
  • 65-74: 0.6% (0.5%)
  • 75 and over: 0.4% (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 May 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: 25.6%
  • 65-74: 28.3%
  • 75 and over: 28.7%
  • Whole population (RPI): 26.0%

• Whilst the rising cost of transport, hotels and restaurants will place some pressure on the budgets of the over 50s, the continued falls in the cost of essentials such as food and clothing will help to absorb these pressures. Overall, the current low rate of inflation for the over 50s continues to help support growing spending power for many households within this group.