The headline rate of inflation fell last month, with prices rising by 7.9 per cent a year in June, according to the latest ONS figures.
This is a significant fall on the 8.7 per cent annual increase in prices recorded the month before.
This fall was larger than anticipated by many economic forecasters, however it still means that inflation, as measured by the Consumer Price Index, is significantly ahead of the Bank of England’s 2 per cent target, and far higher than the Eurozone or the US, where inflation is running at 5.5 per cent and 3 per cent respectively.
But despite this more positive news on inflation, the fact prices are still increasing year-on-year should mean that pensioners are set for another significant boost to the state pension next year.
The triple lock means that the state pension will rise by whatever is highest: September’s CPI figure, average earnings (measure from May to July) or 2.5 per cent.
Broadstone director David Pye said that even if inflation continues to fall it is likely to remain high in September, while average earnings are also at the highest level for a number of years.
Broadstone director David Pye says: “After benefitting from around a £1,000 increase to the State Pension this year, retirees look set for another multi-hundred-pound boost as high inflation persists.
“It looks likely that the state pension will rise above £11,000 next year which will further embed its importance as the foundation of pensioners’ income. At this current rate of increase, it won’t be long before retirees start tripping over the £12,500 income tax threshold solely based on the State Pension.
“However, with government finances under pressure, the soaring cost of the state pension triple-lock will raise further questions around its long-term viability. A demographic bomb is soon to hit with a significant number of baby boomers approaching retirement which will ratchet up the State Pension’s cost to the taxpayer’s public purse.”
In the current fiscal year, it is predicted that the UK, excluding Northern Ireland, will spend £124bn on state pensions, according to a recent report by the OBR. The report also warned that state pension spending is anticipated to increase by £23bn in 2027–28 compared to the start of the decade, 0.8 per cent of GDP in today’s figures.
Aviva welcomed the reduction in the headline rate of inflation. Its head of savings and retirement Alistair McQueen says this reduction will ease pressure on many pensioners, who have seen prices rising faster rate that the increase to the state pension in recent months: “All ages are breathing a sigh of relief at today’s falling inflation numbers. The headline CPI figure was down, from 8.7 per to 7.9 per cent, and the benefits were felt across all ages.
Aviva’s age-inflation index calculates the inflation rate being experienced by different ages, based on their typical shopping habits. It said all ages saw a fall in their age-inflation rate, between May and June.
Its calculations show older households continue to experience the highest inflation rate, on average, as they typically spend a greater proportion of their budgets on the essentials of food and energy. These two categories saw inflation fall in the latest numbers, but their inflation rate remains high by historical standards. Food inflation fell from 18.7 per cent in May to 17.3 per cent in June. Energy inflation fell from 23.7 per cent in May to 23.3 per cent in June.
