With the wrinkles comes higher inflation

Alliance Trusts has published some research showing there is a relationship between age and inflation. Using data from the Expenditure and Food survey and monthly Consumer Price Inflation Reports, they constructed a set of indices of inflation based on the age of the main householder and calculated the results from January 2003 to December 2004. See diagram

They found that:
Inflation rises with age – on average in the last two years the inflation rate of the oldest households run by the over-75s was 67% higher than that of the youngest households (under 30s).

In every month of the two years studied homes run by people of retirement age (65+) faced higher inflation than those of working age.

The biggest difference between the oldest and youngest groups was in April 2004 when the inflation rate for homes run by over-75s was more than 136% higher than that for homes run by under-30s. The smallest difference between the two groups’ inflation was 28% in March 2003.

The oldest households’ average inflation was 36% higher than the average experienced by all households.

If the age lobby groups have not put two and two together then they should. These findings suggest that it is inappropriate to link age-related benefits to a national average for inflation.

Why the difference in inflation rates? Much of the answer lies in the different spending patterns of the old compared with the young. Much of older people’s expenditure goes on utilities (gas and electricity), where there has been a higher rate of price rises. Many older people live in large properties that attract high (and rapidly increasing) rates of local taxation.

Healthcare is another factor. Older people spend a higher than average proportion of their income on health-related products and on insuring themselves against medical bills. Food and soft drinks are another key difference: "The elderly spend twice as much in proportionate terms on eating and drinking as the young," says the head of economics at Alliance Trust.

By contrast, youthful consumers spend a greater proportion of their income on clothing and electronic products and entertainment, where falling prices have helped to keep their inflation rate relatively low.

So what does this mean? Firstly, the components of older people’s expenditure that have a higher rate of inflation will be the first to be cut (beware health insurance firms). Secondly, the distinction between the poor 50 Plus and what I have termed the Charmed Generation (the pension and property rich affluent group) will accelerate. Thirdly, I suspect that government are going to be in for continual pressure from the polically active 50 Plus to do something about the problem. Dick Stroud www.20plus30.com