Inflation experiences of retirees

Abstract

AbstractThe inflation experience of people depends on their expenditure patterns and price developments. This paper identifies groups of retirees that have experienced relatively high price inflation over the last few decades and could thus be considered most vulnerable when income decreases, as has been the case in the Netherlands in recent years. For this we use household budget survey data from 1978 to 2004 supplemented with price information from 1978 to 2012. A methodological contribution to the literature is that an empirical framework based on the theory of consumer demand is used that explicitly makes the link between expenditure patterns and inflation experiences of households. We find that retired couples aged 65–69 have experienced about average inflation over the past few decades. Differences in inflation experiences between households result from relative price increases in goods, such as rent and utilities, on which single, low-income and older households spend relatively more of their budget, and relative price decreases in goods, such as leisure activities (including vacations), on which these households spend relatively less. The estimated differences over the 1978–2012 period in annual inflation experience are about 0.14 percentage points between single and married retirees, 0.06 percentage points between retired couples in the age groups 65–69 and 75–79 and 0.19 percentage points between retirees with low and high expenditures. Although these differences are statistically significant, they could be considered too small to be of economic significance compared with an average household having experienced 2.4% annual inflation.