Contextualizing the Cost of Living Crisis

Written by Josie Lee

Graphics by Jolie Asuncion

It is fair to say that in the past few years, collective anxiety has skyrocketed. . The Covid-19 pandemic didn’t just change our day to day lives, it also greatly impacted the way we collectively deal with crises. The recent Russian invasion of Ukraine has reset the international mood from post-pandemic recovery to real-war-threat panic. Putting aside for a moment the WW3 memes and accompanying TikTok terror, this crisis-driven zeitgeist is far from fading. This hugely concerning socio-political climate provides the backdrop for the worst cost of living crisis in living memory. But what is the cause of this global financial emergency? What are the practical consequences? And is there anything we can do to offset this looming burden?

In 2020, the world went into total lockdown, and the recent lifting of restrictions has by no means been plain sailing. Unsurprisingly, the UK government’s decision to discontinue the distribution of free lateral flow tests for most people in England has been met with significant backlash. Record levels of Covid-19 infections have led to an increase in work absences and staff shortages, problems which are compounded by the threat of new virus variants. Furthermore, President Joe Biden claims that high post-lockdown demands have resulted in product shortages which in turn increases prices.

The pandemic isn’t the only cause of the cost of living crisis. As a result of the ongoing conflict in Ukraine, there have been major disruptions to global supply chains. The invasion also had a direct impact on global trade, which dropped 2.8% in March earlier this year. When it comes to rising energy bills, retaliatory sanctions against Russia are the main contributor. Since the start of Russia's invasion of Ukraine, US oil prices have risen more than 11%. This is largely because the UK and the US have banned imports of Russian energy, which is a necessary yet impactful action, given that Russia is one of the top three producers of oil.

All of this has of course led to what the media are dubbing the worst cost of living crisis for 50 years. In Britain, real household disposable income is forecast to decrease at the fastest annual rate since 1956. Over 70% of households will also need to expend their savings in order to meet growing costs. Mortgage repayments will be more expensive as banks have increased the base interest rate, and many broadband providers are also beginning to put up customers’ bills. Perhaps most crucially, the price of necessities (such as prescriptions and groceries) has risen at the fastest rate in eight years. Although some measures have been introduced to soften this almighty blow, many politicians are of the view that more needs to be done. For example, the UK government is increasing universal credit, but not at a fast enough rate to match growing inflation. 

The UK isn’t alone in its financial struggle; the growing fears of a U.S recession next year threaten to destabilise the Biden Administration. Consumer spending is the single most important driver of U.S economic growth. However, inflation is at a 40-year high and is costing the average household an additional $296 per month. The effects of inflation in the U.S are already being reflected in the elevated costs of many consumer goods. The prices of both fruit and cereal are up by over 7% each, and the price of meat is up by 13%. Stocks are also falling as investors fear the imminent rise in interest rates, and financial educator Sahirenys Pierce believes this is “challenging what future generations consider to be the American Dream”.

From small start-ups to global industries, businesses have been immeasurably impacted. Many have been forced to absorb the higher rates of inflation, and so their profit margins are decreasing. This is compounded by the fact that more people are having to keep inessential purchases to a minimum. Additional strain has been placed on the hospitality sector in the wake of VAT (Value-Added Tax) increases, which will necessitate higher prices for consumers. After enjoying tremendous growth during the pandemic, streaming services are now witnessing a period of decline as well. Accordingly, the rate at which consumers cancel subscriptions to Disney+ has tripled in the last three months. 

Crisis is a word we have become accustomed to hearing in the media, whether in relation to public health, social injustice, or the failure of national services. But the notion of a cost of living crisis carries with it a particularly fear-mongering set of associations and implications which many people have never before been faced with. Understanding where and how these issues will apply within the context of personal financial situations can be a daunting and complicated process. Ultimately, a decrease in disposable income will lead to a decline in the standard of living. Council tax reliefs and rebates will be made available to some people, and the UK government is offering loans to help cover the spike in energy prices. While these solutions may only be short-term fixes for limited echelons, that is not to say there aren’t things which everyone can do to offset the potential impact of the cost of living crisis. Regularly reviewing budgets and tracking savings is a good place to start. Shopping wisely and/or selling unused items is a simple way to save cash and supplement income.

Whether you’re feeling the pinch or footing the bill, it goes without saying that these are not easy times for anyone to be living in. Once again, we find ourselves in the same boat, a sinking ship battling against waves of communal crisis as we try to keep our heads above water. Without wanting to sound glib, it is important we don’t lose sight of the many good things that life brings. Despite conflict and division, the plodding efforts of international solidarity and humanity have preserved a pre-crisis feeling of hope which we must not overlook.