From the TUC

The Cost of Living Crisis: Buzzfeed edition

12 Nov 2013, by Guest in Economics

Britain has a cost of living crisis.

Real wages BF

Prices have been rising faster than wages for the last few years. We’re all getting poorer.

But today – inflation fell.

So should we all should celebrate right? The crisis is coming to an end!

cookie-monster

Not so fast.

The cost of living crisis isn’t really about inflation.

You look confused.

mcfly-huh

The thing is, inflation over the last few years hasn’t been especially high. Here’s RPI inflation back to 1948:

RPI 1948

The last few years don’t look too bad, do they?

In fact prices are rising all the time:

Retail Price Index

So, if prices are rising all the time and inflation hasn’t been that high over the last few years – how do we have a cost of living crisis?

The answer is simple – wage growth has been extremely weak.

AWE BF

Regular pay used to grow about 4% a year and now it’s growing by less than 2% a year.

The most recent data show that regular pay growth is now just 0.8%!

That’s why we have a cost of living crisis and that’s why this is what has happened to the value of average weekly pay:

AWE adjusted RPI BF

Compared to 4 years ago, average regular real weekly earnings are down by about £45.

That’s nearly £2,400 a year.

That makes us all very sad.

megryan_crying

 But the point is that we are getting poorer because of weak wage growth not higher inflation.

Take a look at this chart:

Real earnings RPI BF

In box 1, inflation was about 3% and people were still getting better off.

In box 2 inflation was about 4% and people’s real earnings were flat.

But in box 3 inflation was about 3% and people were getting poorer.

The reason we have a cost of living crisis is poor wage growth – so today’s fall in inflation might help a bit but the squeeze won’t be over till wage growth picks up.

That’s why the TUC thinks Britain needs a pay rise.

This entire post was inspired by Dan Knowles excellent economics ‘articles’ on Buzzfeed.

Gifs from the excellent Reaction Gifs.

3 Responses to The Cost of Living Crisis: Buzzfeed edition

  1. Fair Pay and the cost of living crisis | Fair pay in education
    Nov 14th 2013, 3:37 pm

    […] extraordinary pressure across the economy. In fact, as the TUC’s Duncan Weldon has shown, the downward pressure on pay is at the heart of the cost-of-living crisis. For all the pressure created by rising bills and fares, subsidizing the profits of privatized […]

  2. Inequality and trade unions: lessons from the US | STRONGER UNIONS
    Jan 4th 2014, 2:36 pm

    […] more collective bargaining to reduce inequality, and restore demand to the economy. We’ve pointed out more recently that the current living standards crisis isn’t the result of inflation, but of low wages. And […]