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March 9, 2009

IFS report paints mixed picture of inflation

by Richard Kilner

Story link: IFS report paints mixed picture of inflation

The Institute for Fiscal Studies (IFS) has released a report on inflation which reveals that although the average rate has fallen certain demographic groups have seen it actually rise in recent times.

The IFS has found that the elderly and those who are less wealthy are particularly struck by higher inflation in their lives.

By contrast younger and wealthier people have benefited from lower mortgage rates as the Bank of England has slashed interest rates from 5% to 0.5% in less than six months and petrol prices have fallen.

The Retail Price Index (RPI) measure of inflation has slumped from 5% in the latter half of last year to 0.1% currently. Until late 2008 it had been quite steadily between 4-5%, and has since nosedived.

The Bank of England has forecast possible future deflation, rather than inflation, as a concern and the IFS report states RPI may fall below 0% for the first time in decades.

However, food inflation remains obstinately high at 9.9%, and unlike most items food is obviously not discretionary spending and it affects the poorest most.

Wealthy households with mortgages, easily able to afford the extra food costs, are enjoying record low interest rates which have seen mortgage repayments plunge and mortgage inflation, according to the report, stands at -34.7%.

The IFS’ findings echo what many in the media and political spheres have been acknowledging, that low interest rates are indeed making debt cheaper to service but is severely hampering those who rely on savings (typically pensioners).

In addition, food inflation is compounding the problem with many elderly people seeing their income dwindle as their costs rise.

 

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