The creeping threat of ‘grey’ inflation

Tumbling food prices are welcome news for pensioners who may still be struggling from the financial crisis and its impact on their annuity and savings income.

Latest industry figures show that shop prices have reached a threeyear low with petrol, food and clothing all cheaper than in 2012. But May’s drop in shop prices disguises a sharp rise in the costs facing pensioners, based on their health and lifestyle needs, according to Telegraph Money analysis.

Funding a care home, for example, is £3,271 (12.6pc) more expensive than in 2010. Private hospital costs have also outstripped inflation for the past five years. The data is sourced from the Office for National Statistics (ONS) data using the benchmark measure of inflation, the consumer prices index.

The chart, above, shows how these costs have risen in the past five years. Meanwhile, pensioners have seen their income fall during this period. According to Hargreaves Lansdown, the fund shop, the best annuity rates are 15pc lower now than five years ago.

Someone with a £100,000 pension could buy a guaranteed income of £5,214 a year with the best annuity rate, according to the latest data to October 2014, but would have received £6,125 if they bought in 2010. And record low savings rates have hit pensioners with money in the bank. Interest rates on savings accounts and Isas are influenced by the Bank Rate, which has been just 0.5pc for more than five years. This trend of rising living costs and falling pensioner incomes helps explain the squeeze many pensioners have felt. Here we break down main spending areas.

Food and clothing

Shop prices dropped 1.9pc in May, according to the latest figures from the British Retail Consortium, which marks the 25th consecutive month of “deflation”, when retailers do not increase their prices. Food deflation and supermarket competition has kept prices low.

Essentials such as meat, milk, cheese and eggs have all fallen in price throughout the year – a far cry from five years ago, when prices were increasing by almost 7pc yearly, according to the ONS. But what does it mean for a pensioner’s weekly shop? According to MySupermarket, the price tracking website, a typical basket of goods for the week now costs £86.69, around £5 cheaper than a year ago.

Petrol and public transport

Pensioners are spending less on petrol than a year ago, with prices 12.3pc lower in April than in the previous year, according to the ONS.

The price of petrol has, however, increased by 3p a litre in the last month, according to latest figures from the AA. The company said petrol cost an average of 116p a litre from 113p in mid-April.

But for those pensioners who pay for public transport, prices have been consistently rising over the past five years. Fortunately, most over-60s are eligible for cheaper transport. Older people can travel free on local buses and are eligible to apply for a Senior Railcard, which discounts rail fares by one third and costs £30 a year.

Care homes

Each year around 135,000 elderly people enter care homes. It now costs £29,224 a year to fund a single person in a care home, more than double the average pensioner’s income of £13,993, according to research by Prestige Nursing and Care, one of Britain’s biggest nursing agencies. Care home costs are now 4pc higher than a year ago, according to the ONS, and prices have consistently risen in the past five years. Meanwhile, the cost of private healthcare has increased steadily since 2010, the data shows.

Private hospital treatment costs 3.1pc more now than at the same point last year. The cost of going to the physio or chiropractor is roughly the same as last year, and has increased at levels below overall inflation for the past five years.

Energy bills and heating

Energy bills are at record lows thanks to falling wholesale costs and intense competition. Savvy householders can reduce their energy spend to around £900 a year if they switch to the cheapest deal. But many older people with lower incomes don’t know how to switch.

Fuel costs have been falling since December and are now 2.8pc cheaper than last year, according to the ONS. The cheapest dual fuel tariff on the market is currently with First Utility, £913 for the average use of 13,500 kWh of gas and 3,200 of electricity per year. This price is only available to customers who switch suppliers – the average price is more than £1,200 a year.