Price and income changes for the elderly

It is widely believed that inflation is harmful to the elderly. Two frequent arguments in support of this belief are that some important income sources for the elderly are less than fully indexed to inflation and that the elderly spend heavily on goods and services whose prices rise faster than the average inflation rate. This article focuses on both the income issue and the expenditure issue. The first part of the article evaluates the question of whether an economy-wide consumer price index is an adequate measure of the cost of living for the elderly population. The evaluation is made by constructing a consumer price index using expenditure weights that are more appropriate for the elderly population. It is found that over the 1967-79 period the movement of this constructed index was very similar to that of the economy-wide index. The constructed index did grow slightly faster than the economy-wide index, however. The second part of the article focuses on changes in average real incomes of the elderly over the 1970-77 period. Two dimensions of income changes are examined. First, the incomes of families headed by persons aged 65 or over are compared at different points in time. It is found that average real income of this age class was 10 percent higher in 1977 than in 1970. Second, the 1970 and 1977 incomes of the cohort of families headed by persons aged 65 or over in 1970 are compared. It is found that average real income of this cohort fell by 4 percent between 1970 and 1977.