The Cost of Living Crisis: Buzzfeed edition
Britain has a cost of living crisis.
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!
Not so fast.
The cost of living crisis isn’t really about inflation.
You look confused.
The thing is, inflation over the last few years hasn’t been especially high. Here’s RPI inflation back to 1948:
The last few years don’t look too bad, do they?
In fact prices are rising all the time:
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.
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:
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.
But the point is that we are getting poorer because of weak wage growth not higher inflation.
Take a look at this chart:
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.
This entire post was inspired by Dan Knowles excellent economics ‘articles’ on Buzzfeed.
Gifs from the excellent Reaction Gifs.