Elderly households continue to face highest rate of inflation despite easing pressures

Tuesday, 17 January 2012

This month’s official inflation report showed that the headline rate of inflation eased from 4.8% to 4.2%. Alliance Trust’s monthly study of inflation rates affecting different age groups also shows that inflation rates slowed for all households over the month. However, all five age groups continue to face an inflation rate that is higher than the official rate of 4.2%.

Despite the decline in headline inflation over the month, elderly households continue to face the highest rates of inflation.

The over 75 year old households face an inflation rate of 5.1%, down from 5.6% in November, whilst the 65-74 year old households face an inflation rate of 5.0%, down from 5.5% in the previous month.

This was largely due to a decline in the pace of energy price inflation, which eased the pressure on inflation rates facing elderly households this month. Gas price inflation slowed from 25% to 20% and electricity price inflation fell from 16% to 14%.

Rates of inflation in these categories have a much greater impact on the older age groups, as these households allocate a significantly larger proportion of their budgets to spending on such utilities.

The over 75 year olds allocate around 9% of their household spending to gas and electricity compared to just 4% by the under 30 households. The recently announced gas and electricity price cuts should also help to lower the inflation rates facing these age groups further in the coming months.

Food price inflation was almost unchanged in December, at around 4%. Once again, it is the elderly age groups that allocate a larger proportion of their budget to food, making them particularly vulnerable to changes in food prices. The over 75s allocate 17% of their budget to food, compared with less than 10% by the under 30s.

Lower petrol price inflation, which fell from 13% to 9% in December, helped all age groups to see their inflation rates decline over the month. The 50-65 year old households will benefit most from the lower petrol price inflation, as it is these households which allocate the largest proportion of their budgets to petrol. 50-65 year olds allocate almost 6% of their budget to petrol, whereas the over 75s allocate just 3%.

Linsey Thomson, Senior Economic Analyst, said: 

"It is encouraging to see headline inflation easing this month. This trend should continue, putting less pressure on household budgets. For some time now, higher inflation has been eroding the purchasing power of households. Elderly households continue to suffer the highest rates of inflation, despite all age groups seeing a welcome decline in inflation rates this month. As gas and electricity price inflation eases further, this should help to lower the inflation rates facing these households.”