15 July 2008

PENSIONERS HIT HARDEST BY SURGING FOOD PRICES AND RISING INFLATION

· The inflation rate facing the over 75 year olds surged to 5.4% in June. This is the highest level inflation has reached in the history of our six year study and is also 42% higher than the official rate of inflation of 3.8%.

· Food prices have jumped by almost 11% over the last year, electricity prices have risen by over 11%, and petrol prices are up 24%. Rising basic good prices hit the elderly hardest as they spend a higher proportion of their budget on such goods.

· This month also marked the first time that the 30 to 49 year olds have faced an inflation rate in excess of 4%.

· Alliance Trust Research Centre warns that rising prices for basic goods could push inflation even higher over the next few months, forcing the authorities to leave interest rates higher for longer.

Alliance Trust’s independent study of age related inflation has found that the over 75 year olds continue to be hit the hardest by surging inflation - this age group saw their inflation rate increase from 4.8% to 5.4% in June. The inflation rates facing all other identified age groups have also increased and the majority are running ahead of the official headline rate of inflation of 3.8%.

Age Group	Inflation Rate
Under 30	3.8%
30-49 Year Olds	4.2%
50-64 Year Olds	4.7%
65-74 Year Olds	4.9%
75 and Over	5.4%

Inflation continues to be driven by sharply rising basic goods prices. The over 75 year olds are hardest hit by surging food prices, which have risen by almost 11% over the last year. This hits the over 75 year olds hardest as they allocate 16% of their household budget to food compared to less than 9% for the under 30 households. Within this, dairy prices have risen over 19% and oil and fat prices are up over 28%. In each of these categories the over 75 year olds allocate almost double the proportion of their household budgets when compared to the younger households. The over 75 year olds are also hit hardest by higher electricity and gas prices which rose 11% and 10% respectively. This age group spends almost 7% of their budget on electricity and gas bills whereas the under 30 households spend just 3% on such utilities.

In contrast, younger generations spend a higher proportion of their incomes on clothing, footwear and audio-visual goods, where prices are continuing to fall. This benefits the under 30s who spend 6% of their budget on clothing, almost double the amount allocated by the over 75 year olds. This is reflected by the fact that their inflation rate is running in line with the official rate of inflation of 3.8%.

Spending Weights

Age Group	Food	Electricity	Gas	Petrol
Under 30	8.5%	1.6%	1.4%	4.2%
30-49 Year Olds	10.6%	1.8%	1.6%	5.1%
50-64 Year Olds	11.6%	2.0%	1.9%	5.1%
65-74 Year Olds	13.8%	2.5%	2.5%	4.5%
75 and Over	16.3%	3.4%	3.5%	2.5%

Note: This table shows the spending patterns of different age groups across different spending categories.

These findings confirm that the elevated level of inflation facing the older age groups is worsening. Inflation is being driven by high price increases for food, fuel and utilities. Alliance Trust Research Centre predicts that inflationary pressures will remain strong in the coming months for basic goods and services.

Shona Dobbie, Head of the Alliance Trust Research Centre said, "Our study continues to highlight the extent to which inflationary pressures are hitting the elderly. The over 75s in particular are hit by rising food and utility prices. Food prices are now rising at almost 11%, with basic goods such as dairy prices rising at a rate of over 19%. This effects the elderly in particular, with these households spending a higher proportion of their budgets on the more basic food items. Utility prices continue to rise, with gas price inflation currently running at over 10% and electricity price inflation running at more than 11%. On top of this, petrol price inflation, at 24% is hitting everyone hard.

“This pick up in inflation is particularly worrying for the consumer as it is being driven by higher prices for basic goods and services. This leaves us all with less money to spend on the items where prices continue to fall. Unfortunately, we expect little respite from this situation over the next couple of months as the oil price is expected to remain high and gas and electricity prices are expected to move higher. This means that headline inflation is likely to rise a bit further in the next few months. The danger is that this high level of inflation forces policy makers to leave interest rates higher for longer, increasing the risk of an even greater slowdown in demand and threatening the economy as a whole”

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

Christopher Dodds, Press Officer Anna Schirmer / Stuart Lerman

Alliance Trust Lansons Communications

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

Email Christopher.dodds@alliancetrust.co.uk Email alliancetrust@lansons.com

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, a FTSE 100 company and 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.

4. Inflation and Age chart illustrated below.

Inflation and Age (Jan 2006 to June 2008)