INFLATION RATE FACING ELDERLY JUMPS TO 7%

16 September 2008

Inflation rate facing the over 75 year olds jumped to 7.0% in August, the highest level in our six year study and 49% higher than the official rate of inflation of 4.7%.
Gas prices have increased almost 28% over the last year, electricity prices have risen 18% and food prices have increased by almost 15%. At the same time petrol prices are up nearly 21% over the last year.
Under 30s are the only age group to face an inflation rate lower than the official rate.
Research Centre says that inflation is close to peaking, but the current high level of inflation is forcing authorities to leave interest rates higher for longer, hurting economic growth further.

Alliance Trust’s independent study of age related inflation has found that the over 75 year olds continue to be hit the hardest by rising inflation, and the pain is getting worse. This age group saw their inflation rate jump from 6.3% to 7.0% in August. The inflation rates facing most other age groups increased by a smaller margin in August, but almost all face a rate which is higher than the official rate of 4.7%.

Age Group	Inflation Rate
Under 30	4.5%
30-49 Year Olds	5.0%
50-64 Year Olds	5.6%
65-74 Year Olds	6.1%
75 and Over	7.0%

Gas prices have increased almost 28% over the last year and electricity prices have risen by 18%, hitting the over 75 year olds the hardest. 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 15% 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 basic food items is even higher than this. Bread & cereal and meat prices have all increased by 17% over the last year and milk, cheese and egg prices have surged 19%.

Although everyone is facing a high rate of inflation at this time, younger generations continue to 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 continue to fall. Over the last year, the prices of audio-visual goods have fallen by almost 13%, and clothing prices have dropped by almost 8%. 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 at 4.5% and is in fact lower than the official rate of 4.7%.

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. The recent gas and electricity price hikes hit the elderly the hardest because they spend a higher proportion of their household budget on such services. On top of this the elderly spend a much higher proportion of their budgets on basic food items. Food price inflation is now at 15%, with some basic foods, such as bread & cereals, meat and dairy products, all displaying price increases of 17% or more over the past year. The over 75s are facing a rate of inflation 49% higher than the official rate of inflation, which is currently 4.7%, 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. The oil price has fallen back recently and this means that we could see petrol price inflation easing. The recent gas and electricity price hikes could offset this to some degree however we think that we are close to the peak in inflation. Even when inflationary forces begin to ease, we expect actual price levels for basic goods and services to remain high which will continue to weigh on consumer confidence and spending. 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 / Anna Moulds

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 August 2008)