Spending more on less
Giselle Cory
Date: 27. September 2012 / Category: Commission on Living Standards
There has been a lot of discussion of inflation lately, as prices continue their upward march. The consumer trends data out today from ONS gives us an alternative way of looking at inflation. It shows that we are spending more and getting less on essentials like food, housing and transport. This is shown in the chart below, where solid lines show the amount we are buying and dashed lines the amount we are paying for it (effectively real terms versus cash terms consumption).
Expenditure on housing has skyrocketed over the past decade – but we are seemingly not buying more of it. For other essentials such as food and transport, the picture is equally bleak. Since 2007, we have spent more on these items but seen falling levels of consumption. We have previously talked about how rising costs affect low to middle income households more than others. As that research shows, it is the rising price of essentials – rather than luxuries - that have the most devastating impact on living standards.
Trend in household consumption by price and volume in the UK
Source: Resolution Foundation analysis of ONS Consumer trends
Notes: These charts shows two measures of household final consumption expenditure. Solid lines show chained volume measures. Dashed lines show expenditure in current prices. Both are seasonally adjusted. These measures are indexed against a 1997 baseline (1997 = 100).
Of course, these trends are consistent with overall inflation figures, not all prices are heading in the same direction. For some areas of spending, such as clothing and footwear, consumption has risen proportionally more than expenditure since 1997 – meaning that we are spending more but also getting more. Though this may be good news for shoe lovers, the overall rise in the cost of essentials is bad news for household budgets and so too for living standards.
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