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Inflation hits under 30s hardest

Cherry Reynard
Written By:
Cherry Reynard
Posted:
Updated:
05/12/2014

This month’s official inflation report shows that the headline rate of inflation fell from 1.6 per cent to 1.5 per cent, but research from Alliance Trust shows some age groups are benefiting more than others.

The under 30s have suffered the highest rate of inflation since the start of the year and this continued in August, despite a fall to 1.5 per cent from 1.6 per cent over the month. This is largely attributable to the rise in education costs, which remain more than 10 per cent higher than a year ago. This follows the significant hike in tuition fees in 2012, which continues to affect the figures today.

In addition, inflation in the airfares rose to 5.5 per cent from 3.7 per cent in August. This continues to affect the youngest age group disproportionately as it allocates the largest relative share of spending to this category.

For the fifth consecutive month it is the 50-64 year olds and 65-74 year olds who have the lowest rate of inflation, at 1.0 per cent. This is down from 1.2 per cent in the previous month.

Food prices fell 1.2 per cent in August from a year ago, compared with a decline of 0.6 per cent in the previous month. In particular, vegetable prices were down 5.6% and oil and fat prices dropped 4.6 per cent. These two age groups spend a relatively large proportion of their budget on food and so this is one of the main factors keeping their rates of inflation lower at the moment. Spending on petrol is also relatively important for both the 50-64 and 65-74 year olds and in July petrol prices were 5.7 per cent lower than a year earlier, another force keeping the inflation rates of these age groups subdued.

Linsey Congdon, Senior Economic Analyst, said: “This month we have seen headline inflation easing further to 1.5 per cent, which is the same level experienced in May. The inflation rates of all age groups followed a similar pattern and our study continues to show that it is the under 30s who are suffering the highest rate of inflation. Higher education costs remain the major burden for this age group, but we expect the effect to wane as we move towards the end of the year and the annual impact fades.

“In general, inflationary pressures in the economy are low at the moment, helped by the fact that food price inflation has been zero or negative for the past four months. This highlights the ongoing competition between large supermarkets. Unfortunately for consumers, low inflation is being met with low wage growth – average earnings, excluding bonuses, are up just 0.6 per cent from a year ago, which means that consumers continue to suffer negative real earnings growth. For consumers to see an improvement in their purchasing power, we really need to see a sustained increase in wage growth.”