Is the Cost of Living Accelerating?
A recent news article has suggested that the cost of living has been accelerating in many countries around the world, as inflation has reached unprecedented levels. This is a regressive policy, as it is based on the notion that government spending and loose monetary policy are the cause of rising prices. This omission of the supply side causes regressive policy outcomes that harm consumer demand, raise unemployment, and make people poorer. Nevertheless, understanding price dynamics is key to designing effective policy responses.Social Security beneficiaries are currently receiving the largest COLA in decades. The increase took effect in January, but prices have continued to rise ever since. In December, the Consumer Price Index (CPI), which measures changes in prices for specific goods and services, rose 5.9% compared to the same period the year before. Inflation, however, is not necessarily linked to government spending, so the increase is often higher than the rate of inflation in the economy.The UK's cost of living crisis is taking its toll on low-income households. The latest changes to energy price caps will put four million households into fuel stress, which is when their energy bills consume more than ten percent of their income. As a result, the Bank of England is set to raise the base interest rate in an attempt to slow the rise in prices. This is unlikely to solve the problem of inflation as it will only raise the cost of borrowing and will fail to increase future output.