Price Inflation (Consumer Price Index) was today announced to be running at 0.6%, in the year to August 2016.
- Headline CPI flat at 0.6%, but under 30s continue to experience faster price rises
- Aviva welcomes the new “cleaner, safer and stronger” £5 banknote, but it remains vulnerable to the effects of inflation
- Based on headline CPI, a £5 banknote held since September 2011 has a purchasing power of £4.61 today. For the under 30s it has a purchasing power of only £4.42
Price Inflation (Consumer Price Index) was today announced to be running at 0.6%, in the year to August 20161. This represents no change since last month. For 32 months this headline inflation figure has been below the government’s target of 2%. It last breached this figure in December 2013.
This is the second month of official inflation data to have been collected since the 23 June EU referendum. It is premature to reach any definite conclusions about the impact of Brexit on prices.
The hidden different experience by age
The headline figure of 0.6% is an average, but shopping habits differ by age. Aviva’s analysis of typical shopping habits of different age groups2 and the price movements of different services and goods3 unveils a very different experience for different age groups.
For example, older groups in society spend more of their money on food, and they continue to benefit more from falling food prices. Younger groups, on the other hand, understandably spend more of their money on education, and this is an area where prices continue to rise above the headline CPI figure of 0.6%
Aviva’s Age Inflation Index indicates the following inflation figures by age, for the year to August 2016.
| Aviva’s Age Inflation Index – for the year to August 2016 | |||||
| Head CPI | Under 30s | 30-49 | 50-64 | 65-74 | 75+ |
| 0.6% | 0.85% | 0.54% | 0.62% | 0.53% | 0.35% |
The new £4.61 banknote: Under 30s experience biggest fall in purchasing power
Today also marks the launch of the new “cleaner, safer and stronger” polymer Bank of England £5 banknote4. However, this is still vulnerable to the effects of inflation.
Inflation has the effect of reducing the purchasing power of cash over time. In simple terms, as prices rise the amount of goods that can be purchased by a fixed amount of cash will decline. The higher the inflation, the greater the fall in purchasing power.
Aviva’s age-based analysis brings to life the impact of inflation on purchasing power.
A £5 banknote held for five years, since September 2011, will today have a purchasing power of only £4.61, based on the headline CPI figures over this period.
As shown by Aviva’s age-based analysis, inflation differs for different age groups. The purchasing power of the same £5 banknote will therefore differ for the different age groups.
Under-30s have experienced the biggest fall in purchasing power, driven by the higher inflation they have experienced over the past five years. Today, the same £5 banknote will have a purchasing power of only £4.42 for someone who has been aged under-30 through this period.
The 65-to-74 age group have experienced the smallest decline in purchasing power over this period. Today, the same £5 banknote will have a purchasing power of £4.67 for someone who has been aged 65-to-74 through this period.
Aviva comment
Commenting on the analysis, Alistair McQueen, Savings & Retirement manager said:
“The launch of “the new fiver” featuring Sir Winston Churchill – a one-time Aviva customer – will bring change to all shoppers in the UK.
“The new polymer banknote is reported to be “cleaner, safer and stronger”, but it is still vulnerable to the effects of inflation. Aviva’s analysis shows how the purchasing power of a £5 banknote has declined over the past five years, especially for those under 30.
“Price movements are outside anyone’s direct control, but this does not mean we are powerless to act.
“Saving smarter will make money work harder and help counter the effects of inflation. Saving smarter could help avoid £5 becoming £4.61 in five years time. An individual savings account (ISA) and a pension, with their positive tax advantages, would be a good place for many longer-term savers to begin.”
Aviva services
Aviva offers all ages direct access to ISAs and pensions on its website - http://www.aviva.co.uk/retirement/saving-for-future/
- Ends -
If you are a journalist and would like further information, please contact:
Aviva Press Office: Fiona Whytock: 07800 692 299 or fiona.whytock@aviva.co.uk
Aviva’s retirement spokesperson, Alistair McQueen, is available for comment/interview
Notes to editors:
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1 Source: ONS CPI data, 13 September
2 Source: Office for National Statistics, Annual Family Spending data, 2001 to date
3 Source: Office for National Statistics, Monthly Consumer Price Inflation data, January 2001 to date
4 Source: http://www.thenewfiver.co.uk/