What Is Cost Of Living?

You’ve probably heard the phrase ‘cost of living’ a lot over the past few months. Everyone is talking about how much it has gone up by. And loads of plenty talking about the cost of living crisis.

But what is it, how is it calculated and why has it gone up so much? This post attempts to answer these questions and more.

What is the cost of living?

The cost of living is a measure of how much money it costs to live an average quality of life. So nothing outlandish or extravagant, just everyday living. In general the most widely accepted measure is the consumer price index (CPI).

There are loads of articles online that talk about the costs between different cities, and different countries. Tokyo is generally hailed as the city with the highest of living in the world. This means that it costs more money to maintain an average quality of life there than anywhere else.

But one thing the indexes doesn’t look at are wages. For example in Tokyo while things are more expensive, wages are higher so people will have more to spend.

Cost of living is a helpful metric if you’re planning to move city/ country/ state. You can compare how much everyday expenses compare with your current salary.

How is the cost of living calculated?

Economists measure the cost of living by adding up the prices of the things people need for an average life. This would include housing, food, energy, transport, healthcare, and things like taxes.

It can be hard to compare the cost of living across different countries as it can be very culture dependant, especially when it comes to food. In some countries they might not eat meat which can affect the cost of food. And what’s deemed as essential in one country might not be in another.

How inflation affects things

The cost of living is affected by inflation which is the rate of increase in prices over a given period of time. For example if an item went up from 90p to £1 it would be an inflation rate of 10%. Usually inflation is quite low, maybe 4-8% but it’s hit a massive high in the UK as prices of everything has gone up.

It’s predicted that inflation in the UK will hit 18% early next year according to US financial services group Citi.

There’s no one reason why inflation has gone up so much; supply chain costs have gone up, production costs have gone up, Brexit has affected things, the war in Ukraine has affected things etc. Basically things are costing more to get/ produce so we’re paying more for it as consumers.

How has the cost of living gone up in the UK?

Ignoring the comparison around the world, you’ve probably heard the most about the cost of living right now in the UK.

Pretty much everything we need for our daily lives has got more expensive, and it’s going up far faster than wages are. Fuel prices have continued to rise this year, and the price of food is steadily going up. A lot of these things have gone up more than the inflation rate seems to indicate.

The biggest thing in the UK seems to be the price of energy. Prices were hiked up in March, and they’re due to go up again in October. Some peoples energy bills have gone up by over 200% which is madness.

How are you finding the cost of living?

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