Inflation rate disparity persists between age groups

This month's official inflation report showed that the official headline rate of inflation fell from 3.4% to 3.2% in June, continuing the declining trend which commenced in May. However, Alliance Trust's monthly study of inflation rates facing different age groups reveals that the over 75 year old age group actually saw a sharp increase in inflation, from 3.3% to 3.6%, driven largely by higher food price inflation. For the ninth consecutive month, it is the 50-64 year olds who face the highest rate of inflation, at 4.5%, while the over 75s face the lowest rate, at 3.6%.

The 50-64 year old age group is facing a rate of inflation which is 41% higher than the official rate, largely due to the fact that this group spends relatively more of their disposable income on transport, where inflation remains relatively high, at close to 9%. In particular, fuel price inflation is currently at a level of 16%. In contrast, the over 75s continue to face the lowest rate of inflation, at 3.6%, helped by the fact that this group spends relatively more of their budget on utilities, where prices are now 2.5% lower than at this time last year. Electricity prices have fallen by less than 1% over the year, but gas prices have fallen by more than 6%.

Shona Dobbie, Head of the Alliance Trust Research Centre, said, "Overall Inflationary trends have continued to ease this month, helped by less upward pressure on fuel prices and ongoing price deflation in both clothing and audio-visual goods. This has helped to stabilise, and even ease, the inflation rates facing most of the age groups included in our study.

However, food price inflation has started to increase once more, as have the costs of some household services; contributing to this month's increase in the inflation rate facing the over 75s. Although this age group currently faces the lowest rate of inflation, this may begin to trend higher over the next few months. Currently, it is the two working age groups who face the highest rates of inflation, largely due to the fact that transport price inflation remains high, at close to 9%. But, now that petrol price inflation is easing, we may see the inflation rate facing these age groups continue to decline over the next few months."

Utility price inflation remains negative this month, at -2.5%, as electricity and gas prices have fallen over the last year; by almost 1% and 6% respectively. This helps the over 75 year olds in particular, as this age group spends the highest proportion of their budget on utilities. The over 75s spend almost 8% of their budget on electricity and gas bills; compared to just 4% in the case of the under 30 year olds. However, the elderly also spend a relatively higher percentage of their budget on food, at 17%, compared with less than 10% in the case of the under 30s. The current increase in food price inflation is therefore having the biggest impact on the over 75s.