Ed Conway, Sky News economics editor, said the cost-of-living crisis persists because of how inflation is measured [1].
This distinction matters because a decline in the inflation rate does not mean prices are falling. Many households continue to feel a financial squeeze even when official reports suggest the economy is stabilizing.
Conway said the standard inflation rate focuses on year-over-year changes [1]. This metric compares current prices to those from one year ago rather than measuring the change from month to month [1]. Because the baseline is shifted annually, the data can mask persistent price pressures that keep the cost of living high [1].
When inflation drops from a high peak, it simply means prices are rising more slowly than they were previously [1]. It does not indicate that goods and services have returned to their previous costs. This creates a gap between official economic data and the daily experience of consumers who see their bills remain elevated, a phenomenon that contributes to the ongoing crisis [1].
According to the analysis, this measurement gap explains why consumers feel a disconnect when governments announce a drop in inflation [1]. The cumulative effect of previous price hikes remains embedded in the economy, meaning the actual cost of survival for the average person does not drop just because the rate of increase slows [1].
“The standard inflation rate looks at annual change, which can mask ongoing price pressures.”
The disconnect between macroeconomic indicators and household budgets stems from the difference between inflation (the rate of increase) and price levels (the actual cost). While policymakers target a specific inflation rate to stabilize the economy, the permanent step-up in prices means that consumers do not experience a 'recovery' in purchasing power even when inflation targets are met.
