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Soaring inflation to keep rates higher for longer

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13/08/2008

The rate of inflation for people aged over 75 years old is now 43% higher than the official rate of 4.4%, according to the latest research from Alliance Trust.  

This age group has been hardest hit by the rising cost of living, experiencing a surge from 5.4% to 6.3% in July alone. But all age groups have seen an increase and under 30 year olds are the only age group facing a rate of inflation that is lower than 5%.

Alliance Trust has recorded a 14% increase in food prices over the last year, with both gas and electricity prices up by nearly 13% and petrol prices up 26%. Older people tend to be hit hardest by higher electricity and gas prices as they spend almost 7% of their budget on such bills, compared to 3% for the under 30 age group. Those aged over 75 years old allocate an average of 16% of their household budget to food, compared to less than 9% for under 30 year olds.

Younger people tend to spend more of their income on discretionary items, such as audio visual goods, clothes and footwear, which are falling in price. Under 30s spend 6% of their budget on clothing on average, almost double the amount spent by over 75 year olds. Clothing prices have fallen by more than 7% over the last year, according to Alliance Trust.

Shona Dobbie, head of the Alliance Trust Research Centre, said: “Although the oil price has been falling back over the last few weeks, and we could see petrol price inflation begin to ease, over the next couple of months we expect little respite from high food and utility prices. This means that headline inflation is likely to remain at elevated levels and, even when inflationary forces begin to ease, we expect actual price levels for basic goods and services to remain high. We are concerned that this current high level of inflation is forcing policy makers to leave interest rates higher for longer, threatening the future growth path for the economy as a whole.”

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