13 November 2007

INFLATION RISES FOR ALL AGE GROUPS ABOVE THE OFFICIAL RATE AS FOOD AND OIL PRICE START TO BITE

Not only did the official rate of inflation rise more than expected to 2.1% in October, but Alliance Trust’s independent study found that, for the first time since June 2007, all age groups are suffering inflation at above the official rate. Inflation is hitting the over 75s and the under 30s hardest – these two groups are suffering the highest rate of inflation, at 2.5%. Alliance Trust Research Centre’s headline findings, based on the updated spending patterns of different age groups and analysis of official October inflation figures are:

• Inflation increased across all age groups over the month. This was due to an acceleration in both food and oil prices. Food price inflation reached a six-month high of 5.1%.
• The under 30s face the same inflation rate as the over 75s. Both age groups face an inflation rate of 2.5%, which is 19% higher than the official headline rate of 2.1%.

• Rising food prices continue to weigh on the elderly, who spend a large proportion of their monthly budget on food. Dairy products, oils and fats have all increased by more than 11% over the last year, vegetable prices have risen almost 8% and bread prices are up 5%.
• The youngest age group, the under 30s, have experienced a sharp rise in inflation due to rising prices for food, rent and education. Education costs are up more than 13% over the last year.
• The rising oil price has pushed petrol prices higher. Fuel price inflation is now over 12%.

Alliance Trust Research Centre’s age-related inflation study has been updated using official price data for October. The official rate of headline inflation increased from 1.8% to 2.1% during the month, but our study shows that every single age group is now facing an inflation rate which is higher than the official headline. The problem is particularly severe for the oldest and youngest age groups. Both the over 75s and the under 30s are currently facing an inflation rate of 2.5%, which is 19% higher than the official headline rate. Although, in recent months, declines in gas and electricity price inflation have been helping to reduce energy cost pressures on the elderly, this group is now being hit by higher food and petrol prices. Food price inflation has increased to more than 5%, driven by high price growth for many basic products, such as milk, butter, vegetables and bread.

The inflation rate facing the under 30s has increased for the third consecutive month and now also stands at 2.5%. This reflects the fact that young households are also suffering the impact of higher food prices, and face additional pressures from higher rents and education costs. Education costs have risen by 13% over the last year.

Inflation and Age (Jan 2004 to October 2007)

Source – ONS, In-House Analysis

Shona Dobbie, Head of the Alliance Trust Research Centre said, "Our study continues to highlight the extent to which the real effect of inflation differs from what the government’s headline figure suggests, and varies across different age groups. Throughout the course of our study, which started in 2003, the elderly have consistently suffered the highest levels of inflation. Now they are being matched by the young. Although the official headline rate of inflation rose from 1.8% to 2.1% this month, our study shows that the rate of inflation facing both the elderly and the young has increased to a much higher level of 2.5%. More than four years of higher-than-average inflation has been eating into pensioners’ budgets and it looks like this situation is going to continue for some time. We are also concerned about the more recent trend of young adults also facing inflation which is significantly higher than the headline rate, largely due to higher rents and education costs, as well as the costs of basic goods.”

“Inflation pressures are starting to rise again. The oil price has recently moved to a new record level and this is already pushing petrol and transport costs higher. Food price inflation has been a concern in recent months and we suspect that there could be more to come. This is likely to have the biggest impact on the inflation rate facing the over 75s since this age group spends a much higher proportion of their household budgets on basic items such as food.”

Alliance Trust’s full latest report on ‘Inflation and Age’ is available on www.alliancetrust.co.uk

You can obtain a copy of the report by emailing contact@alliancetrust.co.uk or phoning 08000 326323.

Contacts

Jane Holligan, Media Relations Manager Anna Schirmer/ Stuart Lerman/ Anna Moulds

Alliance Trust Lansons Communications

Tel +44 (0)1382 306064 Tel +44 (0)20 7490 8828

Mobile 07745 783212 Email alliancetrust@lansons.com

Email jane.holligan@alliancetrust.co.uk

Web www.alliancetrust.co.uk

Notes to editors

1. Alliance Trust is an international investment and financial services group. It is headed by Alliance Trust PLC, the largest generalist investment trust company listed on the London Stock Exchange. Through its subsidiaries, Alliance Trust offers investment dealing, self-invested personal pensions and a choice of investment wrappers.

2. The Research Centre is part of Alliance Trust and was formed to carry out economic and social analysis to deepen our understanding of economies, markets and socio-economic issues.

3. Photographs of Shona Dobbie are available.