The Elderly still face the highest rate of inflation

Inflation fell this week, but not so much for the Elderly.

The latest figures from the Alliance Trust Economic Research Centre (14th February 2012) show that despite a sharp decline in household inflation rates in January, Elderly households continue to have the highest rates of inflation.

The over 75 year old households faced an inflation rate of 4.3% in January, down from 5.1% in December, the lowest level since December 2010.

Retired Elderly households tend to suffer the worst effects of inflation due to their relatively inflexible income payments from pension arrangements, compared to people still working for an income, which can to a greater extent increase more in line with inflation. Another factor is the increasing costs of goods and services purchased as a greater proportion of total household costs by the older section of the population – for example: food (16.8%), energy (gas (4.1%) and electricity (4.3%)); and  – notably – care fees. The major inflationary price “fractures” versus income appear to be felt the greatest as we approach our “white silver” years (aged 75 +), arguably when we can become financially the most vulnerable, with little real choice about how we must spend our money, which by this time for some, may well be a dwindling resource.

It is important to plan for this now rather than delay, since inflation can quickly erode the purchasing power in later life of incomes and also hard won capital savings – literally “eating into” your lifestyle.

It is especially important to carefully consider care fees inflation. Care for the Elderly as a cost can be very inflation sensitive due to the specialist and labour intensive nature of most Care services provided. The annual increase in the cost of care fees consistently outstrips price inflation in general and even price inflation for elderly households. This view is also summarised in our latest Financial Planning Assumptions Report which we published recently.

According to the Alliance Trust Economic Research Centre, the 65-74 year old households saw the sharpest fall in inflation, decreasing from 5% to 3.9% in January. However, it is the 30-49 year olds that now face the lowest rate of inflation, at 3.7%. 

Gas price inflation slowed to 19% in January from 20% in December and electricity price inflation eased to 13% from 14%, which did benefit the elderly age groups. This month’s official inflation report showed that the headline rate of inflation eased from 4.2% to 3.6%. This was reflected in Alliance Trust’s monthly study of inflation rates affecting different age groups, which also shows that inflation rates fell sharply 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 3.6%. Despite a fall in the inflation rates facing all age groups, it continues to be the over 75 year old households that face the highest rate of inflation. The over 75 year old households face an inflation rate of 4.3%, down from 5.1% in December. This is the lowest level since December 2010 and is partly due to slightly lower gas and electricity price inflation benefitting this age group, as they allocate a significantly larger proportion of their budgets to spending on such utilities. More than 8% of their household spending is allocated to gas and electricity compared to less than 4% by the under 30 year old households.

However, with inflation in these categories still in double digits, it continues to exert upward pressure on their overall inflation rate. This effect should diminish as the gas and electricity price cuts take full effect over this year.

It is now the 30-49 year olds that face the lowest rate of inflation, at 3.7%. This is the lowest level since November 2009. This was due to a combination of factors, including lower transport and restaurant prices, areas on which this age group spend a relatively large proportion of their budget. The 30-49 year old households allocate almost 6% of their budget to petrol and 4% to second hand cars, significantly higher than the over 75s.  

Food price inflation was almost unchanged in January, at just over 3%. As the elderly age groups allocate a larger proportion of their budget to food, it makes them particularly vulnerable to changes in food prices. The over 75s allocate almost 17% of their budget to food, compared to less than 9% by the under 30s.

If you need to discuss this further with a Financial Planner (initial meeting without obligation, at our expense) why not just complete the form below:

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