Inflation costs pensioners £500 a year - Telegraph.co.uk

It calculated, thanks to research undertaken by Fathom Consulting, the think tank, that those in the 60 to 64 age bracket have been hit by an inflation rate of 2.6 per cent above RPI over the past three years. This extra burden in the cost of living has meant those people have £640 less disposable income each year. This rises to 3.3 per cent above RPI for those 65 to 69, which equates to a £710 hit to their annual disposable income.

Those in their seventies are similarly badly hit, with a disproportionate amount of their income coming from savings – which have been hit by record low interest rates – and a large proportion of their money spent on food and utility bills.

Gordon Morris, the managing director of Age UK Enterprises, said: "The impact of inflation on over 55s has been substantially underestimated and it worsens as you age, with over 75s experiencing cost rises on average four per cent above official measures. For a typical over 60 year old, it means they are on average more than £620 a year worse off than previously thought."

Ros Altmann, director general at Saga, the group which specialises in providing services to the over 50s, urged the Bank of England to raise rates to help savers, especially those in retirement who relied on their savings income.

She said: "This latest jump in consumer price inflation suggests that the Bank has been asleep at the wheel. It now needs to get a grip, and show its determination to combat the ravages of inflation on savers and signal its intent to start raising rates.

"At the moment savers and pensioners are being hit by a double blow of low interest rates and high inflation, and Saga is deeply concerned. We are of the view that a small rise in interest rates will send a positive signal to increasingly desperate savers, without having an adverse effect on the economy. The sooner the Bank acts, the better."

Economists believe that the sharp jump in inflation makes it more likely that the Bank of England will be forced to act in the first half of this year, increasing the record low rate of 0.5 per cent for the first time in two years.

Philip Shaw, chief economist Investec, the stock broker, said the rate of inflation could hit 4 per cent next month and remain above the Treasury's target of 2 per cent in 2012.

He said: "A sustained rise in commodity prices would probably result in inflation remaining above the 2 per cent target throughout next year as well, despite the effects of this year's VAT hike dropping out of the calculation.

"Given this background it will become more and more difficult for the Bank of England to stave off a tightening in monetary policy."

Alan Clarke, economist at BNP Paribas, predicted a rate rise as early as May. He said: "It confirms my suspicion that the first rate hike will come this year, the only question is how soon. Our call is August, but clearly there is a risk it comes as soon as May."