Poor hit by price rises

SURPRISING ALL the pundits, inflation went both up and down last month - that is to say, up for the poor and down for the rich.

The Retail Price Index (RPI) fell to zero for the first time in nearly half a century. The beneficiaries were mainly those with large mortgages on big houses. Monthly average mortgage payments have fallen by more than £240. In London, where house prices are more expensive, average monthly savings are more than £350.

But hiding behind the averages are vast differences - a mortgage on a house worth several million pounds which adjusts with inflation (such as a base-rate tracker mortgage) will leave the owner thousands of pounds better off. While at the other end of the spectrum people sold houses they can't afford by unscrupulous banks are facing repossession, and tenants of repossessed rented houses are thrown out without a moment's notice, Shelter has revealed.

Consumer Prices Index inflation, on the other hand, rose from 3% to 3.2%, partly as a result of food price rises. This hits poor people the hardest as food is a much larger proportion of their spending. Food prices have risen 11.5% in the year. Vegetables rose nearly 19% and meat by more than 15%. Coffee and tea prices increased by more than 10%.

The decline in house prices accelerated in February 2009, reaching an annual rate of decline of 16.5% (up from 15.1%). House prices are still far too high for first time buyers and mortgage payments for those owning houses will not fall any further.

Wage agreements often follow the RPI, so that the most poorly paid workers are threatened with reduced wage settlements while basic outlays are rising. Is it a surprise that consumer spending is slumping or that the recession is now thought to be worse than previously predicted? Compared to a year ago the economy shrank 2%.

Pete Mason