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A simple dictionary definition of cost of living would probably say something like:
The level of prices relating to a range of everyday items…
The problem is, the price inflation for food, or fuel for your car, or heating costs will vary. Although inflation is quoted as just under 9% in the UK, this disguises the true rate of cost increases in different sectors. For example:
To further complicate the issue, inflation is measured in two ways:
The Retail Prices Index (RPI) is no longer classified as a National Statistic because the way it is calculated does not meet international standards.
In general terms, when the press discuss inflation, the measure they are quoting is the CPI. The CPI inflation rate in May 2023 was 8.7%, the same as in April 2023.
The other factor that is entering the equation on this topic is interest rates. The Bank of England only has one weapon in its armoury to bring down inflation and that is to increase interest rates to dampen demand.
As rates increase, the cost of repaying loans – particularly mortgages – is increasing. Stories abound of monthly repayments doubling in recent weeks.
And so, care should be taken when interpreting price increases. The CPI hides a wealth of price increases and decreases that are no where near 8.7%.