15 September 2009

Elderly still face higher inflation despite falling food prices

· Latest figures from Alliance Trust Research Centre show the inflation rate facing over 75 year olds fell from 2.8% to 2.2% in August, the lowest level since September 2007. However, it is still 37% higher than the official rate of inflation of 1.6%

· The gap between inflation rates facing the young and old narrowed again this month, due to a slower fall in inflation rates facing the young. The elderly now face an inflation rate which is 29% higher than the under 30 year olds, the smallest gap since April 2008

· Our three working age groups all face a similar rate of inflation, of 1.7%, but our two retirement age groups continue to face higher inflation. The 65-75 year olds face an inflation rate of 1.9%; while the over 75s face an inflation rate of 2.2%

· During the month, food prices fell 0.7%, while gas and electricity prices were unchanged. The recent surge in the oil price resulted in a 1% rise in petrol prices

This month’s official inflation report showed that the headline rate of inflation fell from 1.8% to 1.6% in August. Alliance Trust’s monthly study of age-related inflation rates reveals that retired households continue to face greater price pressures. The 65-74 year olds face an inflation rate of 1.9%, which is 19% higher than the official rate, while the over 75 year olds face an inflation rate of 2.2%, 37% higher than the official rate. The gap between inflation rates facing the young and old has narrowed to the lowest since April 2008, helped by lower food and utility price inflation.

Shona Dobbie, Head of the Alliance Trust Research Centre, said, "It is encouraging to see that inflationary pressures facing the elderly have receded this month, but we need to remember that the elderly are still facing a much higher rate of inflation than the younger age groups. Recent declines in food and utility price inflation have helped to ease inflationary pressures on these households, but despite that, their inflation rates remain higher than those for the young. The 65-74 year olds face a rate of inflation of 1.9%, and the over 75 year olds face a rate of inflation of 2.2%, both of which are higher than the official rate of inflation of 1.6%. The benefits of falling prices continue to come through more slowly for the elderly, who spend a larger share of their budgets on basic goods and services.”

Age Group	Inflation Rate
Under 30	1.7%
30-49 Year Olds	1.7%
50-64 Year Olds	1.7%
65-74 Year Olds	1.9%
75 and Over	2.2%

Utility price inflation slowed this month from almost 10% to just over 4%. Electricity price inflation also eased, to just over 2%, while gas price inflation remains higher at 10%. Despite the slowing of inflation in these categories, the over-75 year olds continue to be hit the hardest by basic good price inflation, since they spend more than 7% of their budget on electricity and gas bills; whereas the under 30 year olds spend just over 3% on these services.

Lower food price inflation also helped to pull the over-75 year olds’ inflation rate down over the month. Annual food price inflation slowed to less than 2% in August, but because it is still higher than the overall inflation rate, it continues to act as a burden for elderly households. Over-75 year old households allocate more than 16% of their household budget to food, compared to just 9% for the under-30s.

This month, the under-30s and the 30-49 year old age groups saw a fall in their inflation rates to 1.7%. These younger age groups continue to benefit from the fact that price inflation in audio-visual goods, clothing and footwear is still falling sharply. Over the last year, the prices of audio-visual goods have fallen by more than 9%; clothing prices have dropped by almost 10%; and footwear prices by more than 4%. The under-30s spend almost 6% of their budget on clothing and footwear, compared to the 4% allocated by the over 75 year olds.

Spending Weights

Age Group	Food	Electricity	Gas	Petrol	Clothing/ Footwear
Under 30	9.0%	1.8%	1.5%	4.3%	5.9%
30-49 Year Olds	10.9%	2.0%	1.8%	5.0%	6.3%
50-64 Year Olds	11.6%	2.2%	2.0%	5.2%	5.7%
65-74 Year Olds	14.4%	2.7%	2.5%	4.6%	4.7%
75 and Over	16.4%	3.7%	3.5%	3.2%	3.9%

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

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, Communications Manager	Clare Dundas/ Anjali Unnikrishnan
Alliance Trust	Finsbury Group
Tel: +44 (0)1382 306 064	Tel: +44 (0)20 7251 3801
Email: jane.holligan@alliancetrust.co.uk	Email: alliancetrust@finsbury.com
Web: www.alliancetrust.co.uk	Web: www.finsbury.com

Notes to editors

1. Alliance Trust PLC is a self-managed investment company with investment trust status. A FTSE-100 company, it is the largest generalist UK investment trust by market value listed on the London Stock Exchange.

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 on request.

4. Inflation and age chart is shown below.

Inflation and Age (January 2007 to August 2009)

Source: In-house