Last Updated on February 10, 2023 by Kel Ashley
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The cost of everything is going up, up, up and making us all stressed, stressed, stressed (to say the least!) But if you’re here, you’re learning more about the cost of living (and more specifically, what actually increases it) so that you can plan ahead and create more stability in your life. Let us help by delving into the seven reasons that have a direct impact on raising the cost of living around the world and what is causing these dramatic increases so we can understand them more fully…
What Does ‘Cost Of Living’ Mean?
The amount of money required to live in a certain lifestyle and cover necessary expenses in a particular place and time is defined as the cost of living. Housing, food, taxes, health care expenses, clothing, education, entertainment and transportation come under necessary expenses.
What Increases The Cost of Living
- Increasing Energy and Fuel Prices
The energy and fuel prices crisis started in 2021 as demand for oil and gas worldwide outstripped the available supply. This shortage has made the prices go up. The conflict between Russia and Ukraine has pushed the prices even further.
The gasoline prices also raised up in the US, the UK and the EU by around 50% when comparing the prices in 2021. The prices of gas also increased and this made heating bills skyrocket. Demand from Asia has driven up prices, along with a cold winter in Europe last year, which depleted gas reserves.
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2. Increasing Rent and Mortgages
The cost of renting and mortgaging has increased more than ever before. Renting a home outside London is now 11.8% higher than in 2021. It’s believed that the sharp increase can be attributed to the level of demand for properties being higher than the number available for rent.
People with lower income face a huge problem, with many finding themselves priced out of affordable homes or facing unreasonable selection criteria from landlords. Housing costs also became unaffordable to people as there was an increase in council tax bills earlier in the year, with around 2/3 of councils deciding to raise rates.
Mortgage holders have also been hit by an increase in costs as the Bank of England has increased the base interest rate in an attempt to tackle inflation. This means repayments will be more expensive.
3. Goods Shortages
The prices of essentials such as clothing and accessories raised during the pandemic. The lockdown made the consumers stuck as it limited to people going out. Most of the manufacturing companies in Asia also shut down due to restrictions. They have struggled to keep up with demand since then.
It’s led to shortages of materials such as plastic, concrete and steel, driving up prices. Timber cost as much as 80% more than usual in 2021 in the UK and reached more than twice its typical price in the US. And there’s a shortage of microchips, which are vital components in cars, computers and other household goods.
4. Shipping Costs
The main factor to raise the shipping cost is the high demand after the pandemic. The shipping companies which move goods around the world have charged a lot more to transfer the goods. As a result, prices have been passed on to consumers.
Global shipping companies – which move goods around the world – have been overwhelmed by surging demand after the pandemic.
It’s meant retailers have had to pay a lot more to get those goods into stores. As a result, prices have been passed on to consumers. Sending a single 40ft container from Asia to Europe currently costs $17,000 (£12,480) – 10 times more than the year before, when it was $1,500 (£1,101).
5. Rising Wages
Many people quit their jobs or changed jobs during the pandemic. As a result, firms are having problems recruiting staff such as drivers, food processors and restaurant waiters. A survey of 50 major US retailers suggested 94% were having trouble filling empty roles. Due to that companies had to put up wages or offer bonuses to attract new employees and keep the existing ones.
The consumers need to pay those extra costs too as the company needs to keep the profit.
6. Climate Conditions
Weather conditions around the world have indirectly contributed to inflation. Global oil supplies took a hit from hurricanes Ida and Nicholas passing through the Gulf of Mexico and damaging US oil infrastructure.
And problems meeting the demand for microchips were worsened after a fierce winter storm closed major factories in Texas last year. Even the cost of coffee has also increased after Brazil, the world’s largest producer had a poor harvest following its most severe drought in almost a century.
7. Trade barriers
More costly imports are also contributing to higher prices. New post-Brexit trading rules are estimated to have reduced imports from the EU to the UK by about a quarter in the first half of 2021. Roaming charges are returning for many UK travellers visiting Europe this year.
Separately, US import tariffs on Chinese goods have almost entirely been passed on to US customers in the form of higher prices. Chinese telecoms giant Huawei said last year that sanctions imposed on the company by the US in 2019, were affecting US suppliers and global customers.
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Conclusion
Inflation is not unusual and occurs naturally over time, but an issue arises when inflation spikes too quickly, not allowing time for a corresponding increase in incomes.
Raising wages isn’t a cure-all either, as there’s a risk price will soar even higher in reaction to consumers having more money to spend, known as spiralling inflation.
Tune in with our postings. I’ll share more tips in my future articles.
Hey! If you liked this article you might also be interested in these other popular related posts:
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