Baby boomers hit hardest as inflation keeps rising

According to experts, it is 50- to 64-year-olds that are bearing the brunt, with real incomes in the age group down two per cent on last year.

Rising unemployment and lagging wage increases among the baby boom generation has seen many 50 and 60-somethings having to fall back on savings.

But the latest bump in CPI means fewer people of any age will see real gains on their deposits.

Figures from comparison website Moneyfacts.co.uk show that to beat inflation, a basic rate taxpayer needs to find a savings account that pays interest of 5.50 per cent or more.

There are currently eight such products on the market – all fixed rate ISAs.

Those paying tax at the higher rate of 40 per cent need returns of 7.33 per cent to see real-term gains.

The impact of CPI inflation means that £10,000 invested into a savings account paying an average return five years ago would have the spending power of £9,374 today, assuming income tax of 20 per cent was paid on the interest.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: “The latest rise in CPI will continue to antagonise savers, leaving them very few options to negate the effects of tax and inflation.”

She added: “Savers who rely on the interest from their savings to supplement their income, many of which are pensioners, will be hit the hardest.”

Older people suffer disproportionately from price increases as a greater proportion of their outlay goes on food and energy bills.

The Government’s own measure of inflation for the retired, the Office for National Statistic’s Pensioner Retail Prices Index, puts the rising cost of living at 6.2 per cent.

This is above statutory pension increases meaning that older people will feel the pinch.

Saga, the services provider for the over 50s, has noted a sharp fall in the standard of living for the older generations.

It says rising prices in everything from food and clothes to energy costs had resulted in a further dip in pensioners’ quality of life.

But it is those edging towards the end of employment age that are suffering the most, experts warned.

Annual wage increases have been hovering around two per cent – far below inflation.

In addition, baby boomers are thought less likely to benefit from below inflation increases in the prices of products and services marketed towards younger people.

The price of electronic devices such as iPads has increased at a lower rate or even come down.

Bank of England Governor Sir Mervyn King blamed the VAT rise early this year and rising energy and import prices for the rate of inflation breaching the Government’s two per cent target.