Britain’s 2% inflation is nothing to celebrate

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Inflation may have fallen to the Bank of England’s target rate of 2% for the first time in years, but the rate is still the highest in Europe and the elderly continue to face a higher cost of living than the rest of the country.

The average rate of inflation across the European Union is half that in Britain – 1% – according to official figures.

And only Austria and Estonia share the 2% rate with Britain out of the EU’s 28 nations.

Besides Finland on 1.9%, 20 nations have inflation between 0.2% and 1.5%, while four, Greece, Cyprus, Bulgaria and Latvia return negative figures.

Over 75s suffer most

Although the rate may have hit the target, the Bank of England feels 2% is a cost of living increase that is affordable for most people even though wages and pensions are rising at a slower pace.

The over 75s are suffering the worst in Britain, with an inflation rate of 2.2%, says financial firm the Alliance Trust.

Their research shows this age group spends more money on goods and services with bigger price increases, like gas and electricity.

Gas prices increased from 6.3% to 7.8% and electricity from 6.7% to 8.1% in December, when the surveys were carried out.

Younger retirees, aged 65 to 74 have enjoyed a lower rate of inflation because the things they tend to spend money on, like food, fuel and package holidays, have seen prices increase more slowly.

Higher prices on the way

This leaves the elderly on fixed incomes with less spending power and finding bills harder to pay than other age groups who do not spend as much on energy and heating.

Linsey Thomson, a senior economic analyst with the Alliance Trust, said: “Our study shows the over 75s have borne the brunt of the highest inflation throughout the past 12 months.

“They can expect much of the same this year as utility companies have already announced higher prices are on the way.

“Although the eldest pensioners are suffering the worst, everyone’s budgets are feeling the strain because price rises affect us all.”

Despite low savings and annuity rates for new retirees, the 64 to 75 year old age group seemed less affected by inflation throughout 2013 – with all age groups feeling the pinch.

Average inflation by age group throughout 2013

Age GroupInflation Rate
Under 302.1%
30-49 Year Olds1.8%
50-64 Year Olds1.8%
65-74 Year Olds1.7%
75 and Over2.2%

 

Source: Alliance Trust

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