When Will the Cost-of-Living Crisis End and is There Anything You Can Do About It?

How long is a piece of string? Economics is a notoriously hard subject to understand, let alone predict. While we would all like to know when the cost-of-living crisis will end, the truth is there’s no clear answer.

Our current inflationary crisis is particularly unique. Rather than there being a single cause for rising prices, many different issues are coming together at once to add to the pressure. Some of them are problems we’ve never really had to deal with before.

Stick with us though, as it’s not all bad, and some smaller sections of the economy could end up presenting investors with new opportunities.

What do we mean by “cost-of-living” and what defines a crisis?

Before we investigate the question ‘when will the cost-of-living crisis end?’, we had better define exactly what it is we’re talking about. Generally, the cost-of-living refers to how much money you’ll need to cover the essentials. This usually includes housing costs, food, energy and the like.

In the UK, the consumer price index (CPI) is used as the official measure of inflation – a general increase in prices. The CPI is an average of several goods and services meant to reflect overall prices in the economy. Currently, it incorporates clothing, health, communication, education, and other elements.

A cost-of-living crisis refers to a period where these kinds of essentials become increasingly unaffordable. Consumer spending power is stretched, and wages don’t keep up with rising prices. The Bank of England aims to keep inflation at a sustainable 2% level. As it explains: “If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending.

“But if inflation is too low, or negative, then some people may put off spending because they expect prices to fall. Although lower prices sounds like a good thing, if everybody reduced their spending then companies could fail and people might lose their jobs.”

Despite efforts to counteract rising prices though, both the CPI and the CPIH (the consumer prices index including owner occupiers’ housing costs) have skyrocketed since early 2021. In the last half of 2022, inflation regularly hovered around the 10% mark.

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