Inflation hitting under 30s hardest due to university tuition fees

17th June 2014

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Inflation has fallen for all age groups in the United Kingdom according to Alliance Trust’s monthly study into how price rises affecting different age groups.

The survey has found that all five age groups ranging from the under 30s to the over 75s saw a decline in their inflation rates over the month with the headline rate Consumer Price Index having fallen to 1.5% in the latest ONS survey.

The largest decline was in the under 30s inflation rate, which fell from 1.9% to 1.6% over the month. But despite this fall, the under 30 age group still has the highest rate of inflation. One of the main reasons is that education costs are still up more than 10% from a year ago, following the significant hike in tuition fees in 2012 which continues to affect the figures today. Last month, this age group was particularly affected by the timing of Easter, and in May, these seasonal price increases reversed. It was most notable in the airfare price inflation which dropped from +18.5% to -6% over the month. This sharp move benefited the youngest age group disproportionately as they allocate the largest relative share of spending to flying.

It is the 50-64 year olds and 65-74 year olds who have the lowest rate of inflation, at just 1.2%. This is the lowest level recorded for both age groups since 2004. As was the case last month, this is due to a combination of factors, including lower food and petrol price inflation. Food price inflation dropped from 0.5% to -0.6% in May and this is the first time it has turned negative since March 2006. It was driven by lower prices for bread, fruit and vegetables – it appears to us that the intense supermarket price competition may be causing food price inflation to fall, which will be of benefit to all age groups, with the older age groups favoured most as they spend a larger proportion of their expenditure on food. On top of this, petrol price inflation remains negative at -2.5%, contributing to the low levels of inflation for these age groups.

 

Note: This table shows the spending patterns of different age groups across different spending categories,

Source: The Family Spending Survey: 2013 edition and In-house Analysis

Linsey Thomson, Senior Economic Analyst, says: “This month our study shows that it is still the under 30s who are suffering the highest rate of inflation. This comes even when the Easter volatility is removed from the figures and highlights that higher education costs continue to keep the inflation rate facing this age group elevated. General inflationary pressures in the economy are lower now than they have been for some time. This is demonstrated by food price inflation turning negative for the first time since March 2006. Falling food price inflation benefits all households, but it is the older households which tend to spend a larger proportion of their budget on food. For now, the attempts by supermarkets to win market share by cutting prices is benefiting UK households. Alongside food, it is utility, education and transport costs which are driving the changes in inflation at the moment.

Our research highlights that it is difficult to apply a generic rate of inflation to all age groups and that small changes in specific categories of goods and services can greatly affect the inflation rate faced by different age groups. For example, the 50-64 year olds allocate, on average, almost 7% of their spending to petrol compared with just 4% for the over 75s. This means that a fall in petrol prices is more beneficial for the 50-64 year olds”.

Source: In-house

Alliance Trust’s full latest report on ‘Inflation and Age’ is available on www.alliancetrust.co.uk

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1 thought on “Inflation hitting under 30s hardest due to university tuition fees”

  1. David Lilley says:

    I may be wrong but it must be difficult to include student loan inflation for the under 30s. Where does the figure of 10% come from?

    If tuition fees increased from some £3,100 to an average of £8,600 pa in 2012 that is more like a 300% hike but it only affected those starting their course in 2012. But, as they are loans, both rates have no impact on the money in the student’s pocket.

    For those under 30s paying back their loans some will still be based on £1,000 pa and the rest based on £3,000 pa. Only the 22 to 30 year olds are included in this set and their repayments are independent of the new tuition fees.

    We must also consider that 46% of those with £1,000 pa tuition fees haven’t been paying them back. Therefore zero tuition fee inflation for them. And given that we have just sold a £860m student loan book for £140m we only get some 28% of our loans to those with £3,000 pa tuition fees back.

    The 147 institutions beat the system by electing to be an oligopoly of three bodies, such as the Russell and 100 groups, rather than cutting each others throats in a perfectly competitive market. The average fee is £8,600, 43% higher than the £6,000 design. The universities are getting the additional funding plus 43%.

    The institutions win hands down, even fewer ex-students will repay their loans when the £8,600 fee repayments kick in and the taxpayer is probably paying more in university funding than before the introduction of tuition fees.

    I’m sorry that the last two paragraphs are off the inflation subject but they needed saying. I could say a lot more.

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