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The Actuary The magazine of the Institute & Faculty of Actuaries
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Two-year high inflation rate set to put the squeeze on retired people

UK consumer price inflation in December saw its biggest rise since July 2014 according to figures from the Office for National Statistics released today.

17 JAN 2017 | CHRIS SEEKINGS
Inflation will 'squeeze the living standards of retired people' ©Shutterstock
Inflation will 'squeeze the living standards of retired people' ©Shutterstock


Their monthly Consumer Price Index shows that the inflation rate increased from 1.2% in November to 1.6% last month, largely due to price increases for food and motor fuels.

This has raised concerns that retired people may feel the strain of this inflation rise harder than most as they typically spend more of their income on food and heating than others.

Prudential retirement expert, Vince Smith-Hughes, said: “Rising inflation will squeeze the living standards of retired people living on a fixed income, particularly as they often spend a disproportionate amount of their income on fuel, food and heating. 

“Pensioners drawing down an income for their pension funds will have to think again about how much they draw from their funds.

“Increasing the amount they take increases the risk of prematurely exhausting their pension leaving them with only the State Pension to live on.”

The cause of these price increases is thought to be as a result of the depreciation in value of the pound, with many economists believing there will be further inflation increases to come.

Producer price data for December shows that input costs rose 15.8% year-on-year, the highest figure recorded for more than five years, with some of these costs expected to be passed on to consumers in the following months.

The Bank of England has forecast the consumer price inflation rate to exceed 2%, by the middle of this year, with governor Mark Carney expecting the economy to slow in 2017.

PricewaterhouseCoopers chief economist, John Hawksworth, said: “We expect this rise in inflation to continue, based on cost pressures building up in the supply chain and the recent renewed weakness of sterling, taking it above its 2% target by mid-2017 and close to 3% by the end of the year.

“With wage inflation expected to remain sticky, we expect this to squeeze consumer spending power over the course of this year, dragging down economic growth to below 2% in 2017.”