Does Inflation Measure the Cost of Living Any more?
A different issue regarding inflation is whether CPI accurately reflects the cost of living. Many argue UK CPI inflation rate is no longer an accurate reflection of people’s living standards. Ask a variety of people about the cost of living in the UK and most would scoff at the idea of 2% inflation. For example: • pensioners see their council tax bills rising 100% in the past few year (see this blog post) • Due to rising house prices, young first time buyers are inundated with large mortgage payments or expensive rents. • There is also inequality with regard to inflation. Low income groups often spend a higher % of income on food, heating and transport. It is these items which are seeing above inflationary growth. Therefore, many people living on index linked benefits are seeing a decline in their living standards.This graph shows an increasing divergence between CPI inflation (official method and old measure of RPI.
