Isabella McRae, Cost-of-living reporter
ANALYSIS
It feels as though the cost-of-living crisis has already lasted an age. For well over a year, prices have soared at the fastest rate in decades and most wages have failed to keep up.
Inflation, the rate at which prices are rising, hit 10.4 per cent in February. So, will prices ever come down?
Simply put, prices across the board will probably never come down, and certainly not by much, but wages are meant to keep up with rising prices so we are less likely to feel the pinch.
The problem is, this has not happened in some time and pay packets are essentially shrinking, as long as people’s pay rises slower than the rate of inflation, which has now been over 10 per cent for six months. According to the Trades Union Congress, real wages (wages after the cost of living is taken into account) slumped by three per cent in 2022. This is a drop of around £180 a month and the sharpest fall since 1977.
For prices to fall, inflation would need to go into negative figures, often called deflation. The last time it happened was in 2015, when prices fell by a grand total of 0.1 per cent because of a sudden drop in the price of oil. You have to go back to 1960 to find another concrete example of deflation.
Are there other causes for inflation? Last week, Bank of England governor Andrew Bailey blamed a wave of early retirements for forcing up inflation and leading to higher interest rates. His comments were widely criticised.
But don’t panic: the cost-of-living crisis will come to an end eventually. Prices will stabilise and grow more slowly and wages should catch up. It just depends how long we take to get there.
It is unlikely to happen for some time yet. Experts predict it will be at least another few years, possibly lasting until 2028. The Office for Budget Responsibility is warning of a big drop in living standards over the next two years. Once inflation is taken into account, living standards are set to fall by 5.7 per cent between 2022 and 2024. That is the largest two-year fall since records began in the mid-1950s.
But there is light at the end of the tunnel. The Bank of England’s current predictions are that inflation will begin to fall from the middle of this year and be around four per cent by the end of 2023. It forecasts that inflation will continue falling towards its target of two per cent after that. According to the experts at the Resolution Foundation, this means the cost-of-living crisis should ease in 2024. But it won’t fully be over until wages catch up.
Brace yours
