Why inflation is not all bad news for pensioners

The news that inflation reached 4.4% in July is bad news for most people and the wider economy. However, if you are a pensioner, then higher inflation can be a cloud

with a silver lining.

The consumer price index (CPI) was up from 3.8% to 4.4%, and the retail prices index (RPI) was up to 5%. It is the latter figure which at its level in September, sets the rate of annual increase for state pensions. The RPI in September 2007 was 3.9%, and this figure was used to increase state pensions in April 2008. Inflation is bound to rise again in August and September, giving pensions a boost, but it may well fall back in 2009 as the economy may fall into recession.

Therefore OAPs can expect a pension increase of over 5% next year, as inflation retreats.

Unfortunately, inflation is probably running higher for those over 70 as a recent study by Alliance Trust indicated, as pensioners spend a higher portion of their income on energy bills, rather than clothes whose prices are falling, which may benefit younger age groups.

Nevertheless in difficult times any good news is worth grabbing hold off. So pensioners can look forward to a bigger pension pay-day come next April.

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