A Cost of Living crisis (or Cost-of-Living crisis) refers to a situation where the price of labour (and therefore disposable income) has not risen in line with the prices of essential items like food, housing, and energy. As a result, living standards are being squeezed to the point that people cannot afford the standard of living that they were accustomed to. The population becomes poorer than it used to be in real terms. This is in contrast to inflation, which refers to a situation where all prices are going up (including the price of labour like wages and salaries), so workers’ standard of living remains unchanged.[1]

As of 2023, there is a Cost of Living crisis in many countries around the world.[2] In February 2023, 3 out of 4 consumers globally were worried about the rising cost of everyday expenses.[3]

Effects on society

Health

Cost-of-living crises have had significant and wide-ranging negative consequences for mental and physical well-being.

For example, high food prices force people to choose to eat foods with less nutritional value or less food in general. This leads to a higher rate of obesity (due to higher cheap carbohydrate consumption) or undernutrition, and by extention, less energy and lowered performance at school or work. Worse nutrition also leads to a higher likelihood of getting sick from infectious diseases. In poorer countries, there is a higher risk of starvation.[4][5]

Mental health also declines across the board due to the stress of being unable to afford to live properly. Rates of depression and anxiety increase. People are also more likely to lose sleep, forego meeting with friends, not engage in their hobbies, and skip out on exercising. A cost-of-living crisis will lead to a higher demand for social and health services. However, higher operating expenses and a lack of staff to meet the higher demand will result in squeezed budgets and worse service. Overworked and underpaid staff will also be more likely to quit, creating a vicious cycle.[6][7]

Job Market

Workers are more likely to quit their jobs and switch to a higher-paying one because their current job no longer pays enough to cover their lifestyle expenses.[8] Workers are most likely to strike in an effort to improve their circumstances.[9]

Business and investments

Small businesses will be negatively affected due to higher material and energy prices.[10] Customers also have less purchasing power, and so will purchase fewer items from companies who do not sell essential goods.[11]

It becomes more difficult to predict investment returns because of market volatility and uncertainty. People are also less likely to invest in businesses or the stock market because they have less disposable income.[12]

Spending and debt

Consumer confidence drops.[13] Non-essential spending is reduced, with luxury goods, travel and fashion seeing the greatest declines.[14] People are more likely to take on debt in order to keep up with bills and living expenses.[15]

Per Region

United Kingdom

See also

References

  1. ↑ "Cost-of-Living Crisis: How Does It Impact Companies and…". Euromonitor. 21 November 2022. Retrieved 27 August 2023.
  2. ↑ "What the cost of living crisis looks like around the world | International Rescue Committee (IRC)". www.rescue.org. Retrieved 27 August 2023.
  3. ↑ "Euromonitor - A Look at the Cost of Living in 2023". lp.euromonitor.com. Retrieved 27 August 2023.
  4. ↑ "How is the cost of living crisis affecting public health?". Economics Observatory. Retrieved 27 August 2023.
  5. ↑ "The cost-of-living crisis is a public health issue". British Politics and Policy at LSE. 3 February 2023. Retrieved 27 August 2023.
  6. ↑ "How is the cost of living crisis affecting public health?". Economics Observatory. Retrieved 27 August 2023.
  7. ↑ "Mental health and the cost-of-living crisis report: another pandemic in the making?". www.mentalhealth.org.uk. Retrieved 27 August 2023.
  8. ↑ Christian, Alex. "How the cost-of-living crisis is fuelling job quits". www.bbc.com. Retrieved 27 August 2023.
  9. ↑ Bai, Stephanie (21 July 2023). "A wave of strikes has hit Canada. What does this say about our labour market?". Macleans.ca. Retrieved 27 August 2023.
  10. ↑ "How will the cost of living crisis hit your small business? | Bionic". bionic.co.uk. Retrieved 27 August 2023.
  11. ↑ Kollewe, Julia (3 April 2023). "Half of all UK consumers have cut non-essential spending". The Guardian. Retrieved 27 August 2023.
  12. ↑ "The cost of living crisis and how it impacts investments". www.linkedin.com. Retrieved 27 August 2023.
  13. ↑ "Rising cost-of-living pushes consumer confidence to all-time low". Deloitte United Kingdom. Retrieved 27 August 2023.
  14. ↑ "69% of consumers hold back on non-essential spend as cost of living rises; 90% adopt cost-saving behaviours: PwC Consumer Insights Survey". PwC. Retrieved 27 August 2023.
  15. ↑ "Posthaste: Canadians walk financial tightrope as consumer debt hits record $2.3 trillion". Retrieved 27 August 2023.
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