The Cost Of Living Crisis

Why do we have a cost of living crisis?

1. 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?

2. The crisis is coming to an end!

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Not so fast.

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

3. You look confused.

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The thing is, inflation over the last few years hasn’t been especially high.

4. Here’s RPI inflation back to 1948:

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

5. 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?

6. 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%!

7. 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.

8. That makes us all very sad.

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

9. 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.

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