A 0.3 percentage point drop in the consumer price inflation index may encourage the Bank of England to hold off any interest rate rises, but pensioners will still suffer, Tony Wilson has warned.
The head of strategy for foreign exchange specialist Fexco said the CPI was now “comfortably” below its 2 per cent target, meaning the Bank of England has “no need to use interest rates to tame inflation”.
However, he warned that house prices are still “a worry” and, should a rate rise occur next year, households could find themselves strapped for cash.
Alan Higham, director of retirement for Fidelity Worldwide Investment and founder of Retirement Angels, agreed that the falls in inflation were not the panacea to people’s spending problems, especially for pensioners.
He said: “The drop of 0.3 per cent to 1.6 per cent in July, driven by a fall in clothing prices and a 0.4 per cent fall in the prices of food and non-alcoholic beverages, was not driven by areas used by pensioners and this group is still vulnerable.
“CPI is the measure which drives pension increases for State pensions and most occupational schemes. However, it is a poor measure for the inflation pensioners feel on the cost of their goods.
“For example the biggest factor in this month’s fall in CPI was clothing prices falling while the biggest factor going the other way is transport costs. Pensioners do no often need to buy new clothes but transport costs in their food or in their petrol costs are a big factor.”
He added that people entering into retirement should not underestimate how much inflation is likely to impact their purchasing power.
Mr Higham said: “They should make sure their essential expenses are covered by secure income sources which will keep pace with inflation. Those reaching State pension age before 6 April 2016 should particularly consider using their private pension to defer State pension to increase their guaranteed inflation linked income.”
