Older people are suffering from a jump in the cost of living while failing to benefit from the fall in interest rates because the majority have already paid off their mortgages.
According to Age UK, a charity, those aged between 65 and 69 will see at least £710 wiped off their spending power this year because of rises in fuel, food and energy bills.
Those in their seventies will also be badly hit, with a disproportionate amount of their income coming from savings, which have been affected by record low interest rates.
The figures were published as the Office for National Statistics announced a jump in inflation yesterday that took economists by surprise. The figures were described as “horrid”.
“Savers and pensioners are being hit by a double blow of low interest rates and high inflation,” said Ros Altmann, the director-general of Saga, which specialises in providing services to the over-50s.
“This latest jump in inflation suggests that the Bank has been asleep at the wheel. It needs to get a grip, and show its determination to combat the ravages of inflation on savers and signal its intent to start raising rates.”
A surge in the price of petrol and rising utility bills were blamed by the ONS for the consumer price index rate of inflation rising to 3.7 per cent during December, its highest level since April and up from 3.3 per cent in November. Most economists thought it would rise to 3.4 per cent.
The retail prices index, which includes the cost of housing, moved from 4.7 per cent to 4.8 per cent.
Inflation is expected to climb even higher this year, because of the increase in VAT and continued rises in petrol prices. National Insurance is due to go up in April.
Age UK calculated that those over 60, most of whom have paid off their mortgage and do not benefit from low interest rates, were suffering a far worse rate of inflation than the rest of the population.
It calculated that those in the 60 to 64 age bracket had been hit by an inflation rate of 2.6 per cent above RPI over the past three years, meaning they have at least £640 less disposable income each year. This rises to 3.3 per cent above RPI for those 65 to 69, which equates to a reduction of least £710 in income.
Economists believe the sharp jump in inflation makes it more likely that the Bank of England will be forced to act in the first half of this year, increasing the record low rate of 0.5 per cent for the first time in two years. Alan Clarke, an economist at BNP Paribas, the banking group, predicted a rate rise as early as May.
“It confirms my suspicion that the first rate hike will come this year, the only question is how soon,” he said. “Our call is August, but clearly there is a risk it comes as soon as May.”
The ONS said transport costs had risen by 12.9 per cent during 2010. Food and soft drinks gained 6.1 per cent - with vegetable costs up by 8 per cent - while restaurant and café prices rose by 3.6 per cent.
The price of petrol is still rising because of increases in duty, VAT and the price of oil. At 128p for a litre of unleaded, the price is fast approaching £6 a gallon (132p a litre).
