Standard inflation measures failing to fully capture cost-of-living pressures for people on lower incomes

Lady holding, and looking at, a packet of pasta in the supermarket

New research, carried out by CRSP, provides new evidence that households with lower incomes are facing greater financial pressures than existing inflation measures are capturing. The Decent Living Index (DLI) has been developed by CRSP, with the support of abrdn Financial Fairness Trust.

Like the Minimum Income Standard, it is based on household-specific baskets of goods and services that the public agree are necessary to maintain a decent standard of living.  It tracks what is happening to the cost of items that people need rather than actual expenditure.

The DLI is a pilot measure and has initially been calculated for two household types: a single, working-age female, and a couple with two children of pre-school and primary school age. The research compares this new index with CPI and CPIH indices over the same period.

By May 2023, prices were 23% higher than in January 2022 for a single working-age female and 16% for partnered parents with two children, compared with 14% based on CPI, and 13% based on CPIH.
The DLI therefore estimates that a single working-age adult would need around £2,000 more per year than the CPI measure; and a couple with children would need an additional £1,400.
The DLI has the potential to Inform debates around how we think about the adequacy of earnings in the context of high inflation, and how we should determine levels of income that entitle households to additional state support if high rates of inflation are leaving people far short of being able to achieve a minimum, socially acceptable standard of living.

Juliet Stone, Researcher from Centre for Research in Social Policy at Loughborough University, said:
‘The cumulative and persistent impact of high inflation is already stretching incomes to breaking point in many households, and preventing them from achieving a socially acceptable standard of living. We hope that the Decent Living Index will be a valuable addition to the currently available suite of inflation indices, providing a unique opportunity to track the ways in which the changing cost of living affects people’s ability to live with dignity, and informing ways in which this can be addressed.’