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Mortgage rate cuts bring inflation down for the young rich

10 March 2009 / by Rebecca Sargent
Historically low interest rates and consequent mortgage rate cuts are pushing inflation down for the UK's young and rich, a study from the Institute for Fiscal Studies (IFS) has revealed.

The inflation figures show that in January 2009, mortgage holders had an average inflation rate of -2.7 per cent as falling interest rates pushed the cost of mortgages down.

The study also found that age was a contributing factor, as those aged between 30 and 39 experienced the lowest inflation rate of -0.9 per cent, while those aged 80 and over saw an inflation rate of 7.1 per cent. Meanwhile the richest 10 per cent of people saw the lowest inflation rate of -1.3 per cent.

According to the IFS, the statistics demonstrate the way that different households experience different inflation dependant on their circumstances, unlike the Office for National Statistics figures which base Retail Price Index inflation on an 'average' basket of goods.

Amongst the worst hit by inflation are those drawing a pension, who are spending a higher percentage of their income on bills like food and gas and electricity. Commenting, Mervyn Kohler, special adviser for Help the Aged said:

"It's no surprise that older people face higher than average inflation rates – pensioners typically spend more of their money on daily essential items that go up most. Even though inflation may be decreasing, pensioners living on low fixed incomes are still likely to struggle."

Liberal Democrat shadow chancellor Vince Cable added: "This report is clear evidence that the recession is hitting the most vulnerable the hardest.

"Those on higher incomes are now starting to see the benefits of very large falls in mortgage repayments and petrol costs. But for the elderly who spend the majority of their money on heating and food, inflation remains very high."

© Fair Investment Company Ltd