Inflation remains unchanged despite higher food and fuel prices

Alliance Trust’s independent study has found that the inflation rates facing all five of its identified age groups remained unchanged over the month.

Inflation continues to hit the over 75s and the under 30s hardest – these two groups have the highest inflation rate at 2.6%. Alliance Trust Research Centre’s headline findings, based on the updated spending patterns of different age groups and analysis of official December inflation figures are:

In December, there was no change in the rates of inflation facing our five identified age groups. Ongoing declines in utility prices helped to compensate for the combination of higher food and fuel prices. Food price inflation is at an 8 month high of 5.9%.

The under 30s face the same inflation rate as the over 75s. Both age groups face an inflation rate of 2.6%, which is 24% higher than the official headline rate of 2.1%.

Rising food prices continue to weigh on the elderly, who spend a large proportion of their monthly budget on food. Prices of dairy products have increased by 15% over the last year, which is more than seven times the headline rate of inflation. Bread prices have increased by almost 8% and vegetable prices are up 7%.

The youngest age group, the under 30s, continue to face a relatively high rate of inflation. This is due to the combination of rising prices for food, rent and education. Education costs have risen by more than 13% over the last year.

The rising oil price has pushed petrol prices higher. Fuel price inflation is running at close to 17%, which is eight times the official headline rate of inflation.

Shona Dobbie, Head of the Alliance Trust Research Centre said, "Our study continues to highlight the extent to which the impact of inflation can differ from the official headline figure. In particular, we repeatedly identify big variations in the inflation rates applying across different age groups, reflecting the different spending patterns of each group. Since our study began in 2003, the elderly have consistently suffered the highest levels of inflation. Over the past few months, they have been matched by the young. This month we have found that both age groups continue to face a rate of inflation of 2.6%, which is considerably higher than the official headline rate of 2.1%. Our study now shows that pensioners have been suffering higher-than-average inflation for five years, and this has been steadily eating into their budgets. Unfortunately, we suspect that this situation could continue for some time. Older households are particularly vulnerable to the impact of rising prices for basic goods such as food and household energy, and these are the categories where we are seeing most pressure at this time. We are also concerned about the high rate of inflation facing young adults, which is largely due to higher rents and education costs, as well as the costs of basic goods.”

“Although the official headline rate of inflation remained unchanged this month, inflationary pressures are still strong for many basic goods which we all have to buy on a regular basis. This makes inflation feel much higher than the official level, and leaves less money left over to spend on the more discretionary items, such as clothing and audio-visual goods where prices continue to fall. Increases in basic goods prices have the biggest impact on the over 75s since this age group spends a much higher proportion of their household budgets on basic items such as these. Unfortunately, we see no signs of these pressures easing in the near future.”