12 Aug 2008

ELDERLY SUFFERING A RATE OF INFLATION WELL ABOVE 6%

  • Inflation rate facing the over 75 year olds surged to 6.3% in July – the highest level of our six year study and 43% higher than the official rate of inflation of 4.4%.
  • Food prices have increased by almost 14% over the last year, both gas and electricity prices are up by nearly 13% and petrol prices are up 26%.
  • Under 30s are the only group facing a rate of inflation which is lower than 5%.
  • Research Centre says that rising prices for basic goods could hold inflation high and force authorities to leave interest rates higher for longer, hurting the economy overall.

 

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, and the pain is getting worse. This age group saw their inflation rate surge from 5.4% to 6.3% in July. The inflation rates facing all other identified age groups have also increased sharply and the majority are now in excess of 5%, well ahead of the official rate of 4.4%.

 

Age Group

Inflation Rate

Under 30

4.4%

30-49 Year Olds

5.0%

50-64 Year Olds

5.4%

65-74 Year Olds

5.8%

75 and Over

6.3%

 

The over 75 year olds are hit hardest by higher electricity and gas prices which have both increased by around 13% over the last year. 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.

 

Over 75 year olds have also suffered from the ongoing surge in food prices, which have increased by almost 14% over the last year. This hits the over 75 year old age group hardest as they allocate 16% of their household budget to food compared to less than 9% for the under 30 households. Inflation for many staple foods is even higher, with bread & cereal and meat prices all having increased by 16% over the last year, and with dairy, cheese and egg prices up by 19%.

 

Although everyone is facing a high rate of inflation at this time, younger generations benefit from the fact that they spend a higher proportion of their incomes on discretionary items, such as audio visual goods, clothing and footwear, where prices are continuing to fall. Over the last year, the prices of audio-visual goods have fallen by almost 12%, and clothing prices have dropped by more than 7%. The under 30s spend 6% of their budget on clothing, which is almost double the amount allocated by the over 75 year olds. The inflation rate facing the under 30s is the lowest of all the age groups, matching the official rate of inflation of 4.4%.

 

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.

 

 

Shona Dobbie, Head of the Alliance Trust Research Centre said, "We are currently seeing the highest levels of inflation in the history of our six year study. This sharp increase in living costs affects the elderly in particular because these households spend a much higher proportion of their budgets on basic food items. Food price inflation is now at 14%, with some basic foods, such as bread & cereals, meat and dairy products, all displaying price increases of 16% or more over the past year. Over 75s are facing a rate of inflation 43% higher than the official rate of inflation, which is currently 4.4%, mainly due to rising utilities and food costs which have soared over the past year.”

 

“This current battle with inflation is particularly worrying for consumers as it is being driven by higher prices for basic goods and services. This leaves households with less money to spend on the items where prices continue to fall. Although the oil price has been falling back over the last few weeks, and we could see petrol price inflation begin to ease, over the next couple of months we expect little respite from high food and utility prices. This means that headline inflation is likely to remain at elevated levels and, even when inflationary forces begin to ease, we expect actual price levels for basic goods and services to remain high. We are concerned that this current high level of inflation is forcing policy makers to leave interest rates higher for longer, threatening the future growth path for 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

Jane Holligan, Media Relations Manager              Anna Schirmer / Stuart Lerman

Alliance Trust                                                               Lansons Communications

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

Email  jane.holligan@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 July 2008)