As the days darken, the mood in the UK also darkens as we head into another trying winter. Things are dark. No sooner had we begun to recover some semblance of normalcy from the jaws of COVID – which, for your information, is always very present – that the cost of living crisis hit.
Today, you can expect to shell out significantly more for absolutely everything than a year ago, as prices are rising faster than they have in 40 years. Food prices are skyrocketing, along with prices in stores up 5.1% in Augustor for fresh foods in particular, 10.5% – the highest rate seen since 2008.
Meanwhile, the cost of keeping our homes warm has skyrocketed. Liz Truss’ promise to completely freeze energy bills at £2,500 a year from October 1 to 2024 could prevent households from paying the £3,549 originally set by Ofgem’s energy price cap, but it still means paying far more than we have been. Customers of prepaid meters, for example, will need to find £264 in cash for January energy alone, according to Resolution Foundation analysis.
Apart from the cost of food and utility bills, the price of non-essentials is also climbing. Even Panini football sticker albums aren’t immune to price hikes. Filling the World Cup album for Qatar 2022 will cost around £870with each sticker pack at 90p, compared to 80p they cost for the Russia 2018 version and 50p for Euro 2016. Thank you very much, inflation.
But what exactly is inflation, and how did we get into this hellish situation? We spoke with experts to help us understand all of this.
What exactly is inflation?
Inflation is the general increase in the price level of something, explains David Spencer, professor of economics and political economy at the University of Leeds.
Overall UK inflation topped double digits for the first time in four decades when it reached 10.1% in the year to July before descending slightly 9.9% in August. Goldman Sachs predicted it could continue to increase to 22% Next year.
But, says Morten O. Ravn, professor of economics at University College London, there is an important distinction between the cost of living crisis and inflation.
“Usually the way we think about inflation also includes the rate of wage increases,” he explains. “What’s happening right now is that the prices of the things we buy are going up, but not our income. What we can buy with our wages is diminishing. Pure inflation would also mean that our salaries would increase at the same rate. This is why this [situation we’re in] is more of a cost of living crisis than pure inflation.
How is inflation calculated?
Inflation can be measured using several methods, but the most commonly used is the percentage change in prices over time of a sample of goods and services in an imaginary world”.basket”.
“Basket content is defined as the type of things people buy in the UK,” says Kevin Albertson, professor of economics at Manchester Metropolitan University. “Price changes are combined by weighting all individual price changes according to the importance of those items to UK consumers. For example, if we buy twice as much chocolate as carrots, then chocolate price changes are twice as large as carrot price changes, and therefore have twice as much weight in the index combination. overall.
Why is inflation so high today?
Several factors come into play here, including the high cost of food, oil, gas and other fuels. But as to the reasons behind it, Brigitte Granville, professor of international economics and economic policy at Queen Mary University of London, names the COVID pandemic and lockdowns, Russia’s war in Ukraine, economic sanctions result and the disruption of global supply chains among them. .
Ravn adds that a “Brexit effect” is also likely contributing to higher prices in the UK. Among the results of Brexit is the fall in the value of the pound, which collapsed to a 37 year low last Friday. As the value of the pound falls, the price of everything Britain imports rises, says Ravn, and “the loss in value of the pound is fueling inflation in the UK”.
Granville goes on to explain the role commodity scarcity plays in driving up prices and, therefore, inflation. “Economics is based on scarcity, so when something is scarce it costs a lot of money because a lot of people want it.”
Albertson adds that the world is short of resources in general, which means what we have has to be rationed. The result gives food for thought. “As prices rise faster than wages, people who don’t make a lot of money are pushed out of the market, and so, as a result, people who have the most money can buy whatever they want. This obviously isn’t very fair, but that’s how markets work,” he says.
But I didn’t get a raise!! Why don’t salaries rise with inflation?
The simple answer to this is that not all workers have the power to raise wages, says David Spencer, professor of economics and political economy at the University of Leeds. This is why many people are facing a decline in real wages. “Power is skewed in favor of employers, not workers, at least in the UK,” he says.
How will all of this affect me?
Albertson’s previous comments may have already given you an idea, but there’s more.
“It’s going to be catastrophic,” warns Granville. “Before, in the 1970s, we had what’s called wage-adjusted inflation, so wages were inflation-adjusted. It was bad because it meant you could never get rid of inflation, but at least people could live. Now we don’t have that anymore. So what does this mean? This means that in real terms, for example, say you bought a kilo of sugar last week and it cost £3, now the same kilo of sugar is going to cost £10, but your salary has not changed .
Albertson agrees that most people in the UK will see their quality of life deteriorate in the short term, but he has some hope for young people. “In the long term, young people have a longer lifespan than people my age, and hopefully things will improve,” he says. “It’s because technology can improve the efficiency of the energy we can access. That is, we may need less energy to maintain a quality of life.
But it requires action, and now.
“In the same way that governments got involved in the search for a COVID vaccine, governments must take the lead in developing sustainable technology,” Albertson says. “In the meantime, they must also take the lead in ensuring that the people who need the most help get the most help.”
How am I supposed to live like this, exactly?
In short, as simply and sustainably as possible, says Albertson.
But, in the end, the responsibility is not really on us, the ordinary people on the ground, to fix this situation. Ravn says: “It is up to the Treasury and the Chancellor to step in with policies that allow people to cope one way or another. These would be special tax policies for the poorest and a better distribution of income. If we spent on the distribution of income, we would be able to [ensure quality of life] for the poorest and beat inflation, so it is better to introduce targeted policies.
How the hell did we get into this mess?
Albertson points to governments around the world and how they have bought into the idea that economic growth can be perpetuated forever. But it’s not strictly realistic without action.
“It requires constantly improving technology, given that we have a standard stock of resources,” says Albertson. “Lately, technological improvements have not been sufficient to compensate for the decline in our stock of resources. Therefore, the demand is greater than the supply for the current level of production.
Is there any hope?
There is always hope, reassures Spencer. “The economy can be reformed in a way that allows the majority to prosper,” he says. “We have gone through inflationary episodes in the past. The key is to ensure that lower inflation does not come at the expense of higher unemployment.