Pensioners suffer far higher inflation than younger people

15/07/11
Financial News

New research shows that the rate of inflation for older generations is significantly higher than that suffered by their children and grandchildren.

The report by Alliance Trust showed that the inflation rate for people aged between 64 and 74 is 5.1% per year, compared to the latest CPI figure for June which was 4.2%.

People under the age of 30 suffer the lowest rate of inflation at 4.6% because of the relatively small amount they spend on food. They are also the group most likely to live in rented accommodation and rent inflation is running at just 2.2%.

Goods & services

The reason for the discrepancy is down to the goods and services bought by pensioners. Food and energy, which are both rising significantly, make up a greater proportion of a pensioners spending and pushes up the effective rate of inflation.

Ros Altman, director general of Saga said, “prices may have fallen in games consoles and electrical goods but the essential items that pensioners buy , namely heating and food, are still being severely affected by inflation levels, control of which continues to be in short supply.”

The situation is unlikely to get better in the short term with two energy companies announcing significant price increases and others destined to follow suit.

Buying habits

The way in which goods and services are bought may also contribute to an increase in costs for older generations. For example the cost of car insurance has risen by 24% over the past year and this is likely to affect pensioner’s more than younger people who are more open to shopping for the best price online.

Interest rates

Many pensioners rely on savings to make up part of their income and the surprise fall in inflation announced earlier this week makes an interest rate rise over the coming months far less likely.

This is bad news for savers who have seen the return on their savings fall as interest rates have been kept low to help stimulate the struggling economy.

“Month after month, this country’s savers witness the value of their hard-earned savings whittled away by inflation,” said Dr Altmann. “The fall in inflation is clearly positive but this appears to be more through luck than judgment and there is still a long way to go.

“The Bank should take a long hard look at the dangerous impact this double whammy of high inflation and low interest rates is having on the UK economy, rather than exclusively focusing on the presumed benefits of keeping rock bottom rates unchanged.”