Wednesday, September 15, 2010

I hate averages

The next time the news reader drones on about the rate of inflation and how it has gone up or down do remember that there is not one “inflation rate” but multiple rates depending on the age of the individual.

The Alliance Trust Research Centre has done some fascinating work showing how inflation varies by age and how it has varied over time. Click on the images to enlarge.

Why does inflation depend on age? The spending weights table shows how the share of spend varies with age. For instance, a 30 year old will spend far less of their outgoings on food than a 75 year old. Since the rates of inflation for food, electricity, gas, petrol and clothing are all different it means the rate of inflation they experience will vary accordingly.

We are now in the eleventh consecutive month when 50-64 year olds face the highest rate of inflation (4.2%), which is 35% higher than the official headline rate of 3.1%. If you are 75+ you will be suffering the lowest rate.

Is this important to marketers? You bet, since it means that the disposable spend of certain age groups is eroding faster than others. Dick Stroud

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