Older pensioners facing the highest rate of inflation

The over 75s continue to face the highest rate of inflation in December at 2.2%

They have suffered the highest rate of inflation for the whole of 2013 as they spend a larger share of their budgets on basic goods such as gas and electricity

The 65 to 74 year olds have faced the lowest rate of inflation in 10 out of the last 12 months, thanks to lower inflation in food, petrol and package holidays

This month’s official inflation report showed that the headline rate of inflation fell from 2.1% to 2.0%. Alliance Trust’s monthly study of inflation rates affecting different age groups found that three out of five age groups have an inflation rate lower than the official figure.

It is the 65-74 year olds who have the lowest rate of inflation at 1.7%. However, it is still the over 75s who face the highest rate of inflation, at 2.2%. They have suffered the highest rate of inflation throughout the whole of 2013 and this has mainly been due to the fact that this age group spends a larger share of its budget on household energy.

Both gas and electricity price inflation increased in December. Gas price inflation accelerated from 6.3% to 7.8% and electricity inflation rose from 6.7% to 8.1%, as the previously announced price hikes came into effect.

For the second month in a row it is the 65 to 74 year olds who are facing the lowest rate of inflation. The fact that this age group has the lowest rate of inflation is due to a combination of factors including lower inflation rates for food, petrol and package holidays.

Food price inflation fell from 3.0% to 2.1% in December and this category accounts for a large share of the young pensioners’ budget, more than 14% in total. On top of this, lower petrol prices also benefit this age group and, currently, petrol prices are down more than 1% from a year ago.

Finally, young pensioners benefit from lower prices for package holidays and in December inflation in this category fell to just 0.7%. The 65 to 74 year olds spend more than 5% of their budget in this area, the highest of any of our age groups.

Spending Weights

Linsey Thomson, Senior Economic Analyst, said:

“Our research shows that the over 75s have suffered the highest rate of inflation throughout the whole of 2013 and this will be putting a strain on their budgets. The main contribution still comes from higher gas and electricity prices and due to the price hikes announced a few months ago, we can expect these rates of inflation to remain in place for much of 2014, keeping the inflation rate of this age group elevated. Interestingly, it is the young pensioners who have the lowest rate of inflation as it appears that this age group is benefiting from a combination of factors at the moment – lower food, petrol and package holiday inflation rates. The problem is that reality may not feel as rosy for this age group, given that the gas and electricity price increases affect everyone, not just the elderly.

Our research highlights that it is difficult to apply a general rate of inflation to all age groups. When we look back at our inflation rates through 2013 the striking fact has been that the over 75s have experienced the highest rate of inflation throughout the year but at the same time the 65 to 74 year old have experienced the lowest rate of inflation in 10 out of the last 12 months. This highlights the fact that it is difficult to apply a generic rate of inflation to all age groups and that small changes in spending patterns can greatly affect the rate of inflation one faces”.