Seldom does another topic supplant the weather as the most common conversation topic amongst Brits. And yet, for six months now, temperature has been eclipsed by heated talk of sharply accelerating consumer price inflation. Now, when discussing today’s weather, there is very often the element of how climate change is affecting matters and what we can do to improve things. There is, however, no such consideration of how we can act to make cost matters cooler for ourselves than indicated by the rapidly rising CPI. The cost of living is, it seems, ‘out of our hands’. Well, for a whole host of reasons, it most definitely is not.
The cost of living is very much collectively ‘in our hands’, not least because we can improve our energy security and by doing so make energy more affordable. This heated topic was covered recently in the missive ‘Finding the energy to secure our energy future. In this short piece I turn to how, in the individual ways we shop around for the most competitive alternative, we can collectively fare financially better than the official numbers warn.
“I will, in short, claim that the much vaulted CPI exaggerates – yes, overplays – how much we are paying because it underplays how quick we are at adapting our spending”
In what follows, I will, in short, claim that the much vaulted CPI exaggerates – yes, overplays – how much we are paying because it underplays how quick we are at adapting our spending. Adapting, not because we are trading-down for inferior goods and services, but because we are quickly exploiting the array of alternatives out there for our valued custom.
Imagine we were given a single figure for today’s likely temperature across the UK; there would be uproar and demands for detail. And yet, we accept the CPI as being a one-size-fits-all measure. A proper critique of CPI would be exhausting, so I will confine myself to just one element. Specifically, why it is not the inviolately accurate measure of how our cost of living is changing, and why it is particularly poor when prices appear to be rising dramatically. Those with a microeconomic textbook to hand will know that what follows is a simplified attempt at bringing to life Slutsky and Hicksian elasticity of substitution effects.
