Inflation: Why It’s Hitting You Harder Than the Numbers Show
Walk into any supermarket today, and you’ll likely feel a pinch that official statistics fail to fully explain. You might be told that inflation has “eased” or “plateaued” because the latest Consumer Price Index (CPI) figures say so — but your weekly grocery bill still creeps higher, and that sandwich at your usual lunch spot costs £1 more than it did last year. If you’ve been wondering why your personal experience of inflation feels worse than the headlines suggest, you’re not imagining it. This disconnect between reported inflation and lived economic reality is both psychological and structural — and it’s reshaping trust in policymakers, economic indicators, and even personal financial planning. What the CPI Really Measures — and What It Doesn’t The Consumer Price Index (CPI) is the most commonly cited measure of inflation. It tracks the average change in prices paid by consumers for a predefined “basket” of goods and services (Office for National Statistics, 2024). However, CPI is, by design, an average. It does not reflect how individual households spend money, especially when those households are facing different levels of financial vulnerability. For example, while CPI might show a 3.2% increase in overall prices, food prices might have risen by over 10%, disproportionately affecting lower-income households who spend a larger share of their income on groceries (IFS, 2023). This means that your personal inflation rate could be significantly higher than the national average. Essential Costs vs. Discretionary Spending Inflation does not hit all sectors equally. Essentials like food, energy, rent, and transport have seen disproportionate increases. According to the Resolution Foundation (2023), energy prices in the UK surged over 50% between 2021 and 2023, contributing heavily to household financial strain — especially for renters and those on fixed incomes. When CPI includes categories like entertainment electronics or holiday packages — which wealthier consumers may buy but low-income families often forego — the overall inflation rate is diluted. That creates a mismatch between policy numbers and personal hardship. The Psychology of Inflation: Loss Aversion and Expectation It’s not just about what’s in your wallet — it’s also about what’s in your mind. Research in behavioural economics shows that loss aversion plays a critical role in how people perceive inflation. We feel the pain of paying more much more sharply than the benefit of stable or falling prices (Tversky & Kahneman, 1991). This leads to an emotional overestimation of inflation’s effects — a concept supported by recent studies in consumer sentiment (Binder, 2022). Moreover, the expectation of continued inflation can alter behaviour: people start stocking up, demanding higher wages, or cutting spending, creating a self-reinforcing feedback loop. This makes inflation not just an economic condition, but a psychological one too. Shrinkflation and Skimpflation: The Hidden Costs Another reason it feels like inflation is worse than reported is due to shrinkflation — where product sizes decrease while prices remain the same — and skimpflation, where quality or service declines instead of price rising. A classic example? That cereal box that used to weigh 500g now weighs 450g, but the price hasn’t changed. Or when you call customer service and wait twice as long because companies have cut staff. These quality and quantity changes are often not fully captured by the CPI, even though they affect your day-to-day value for money (ONS, 2023). Geography and Inequality Matter Inflation is not experienced equally across regions or socioeconomic classes. Urban dwellers may face higher housing inflation, while rural consumers might pay more for transport and fuel. According to Dorling (2023), inflation has widened economic inequality, because higher-income households can absorb or avoid cost increases more easily — for example, by locking in fixed-rate mortgages or buying in bulk. Meanwhile, the poorest households spend a greater proportion of their income on essentials, leaving less flexibility when prices rise. A household earning £20,000 per year will feel a 10% rise in food prices far more sharply than a household earning £100,000. Inflation and Wages: A Disconnected Dance Another source of frustration is the wage-price gap. While inflation may be slowing, wage growth often lags behind. If your wages are rising by 3% but inflation was 6% over the past year, you’re still falling behind in real terms. According to the Bank of England (2024), real wage growth in the UK only turned positive in early 2025, after nearly two years of negative growth. During that time, households experienced a decline in purchasing power despite stable employment figures — adding to the perception that “things are getting worse” even when macro data seems to improve. Is CPI Misleading the Public? It’s important to acknowledge that CPI is not “wrong” — it’s just limited. It serves as a useful macroeconomic tool for central banks and economists. But it is increasingly inadequate as a proxy for the actual lived experience of inflation. Economists like Stiglitz (2022) have argued for more distribution-sensitive measures of inflation that account for household-level variation. Some central banks are now experimenting with “personal inflation calculators“, but these have yet to enter the mainstream policy conversation. What Can Be Done? Better Data: National statistics agencies should develop multi-tier inflation indexes that reflect income levels and regional variation. Clearer Communication: Media and policymakers should avoid equating CPI changes with universal consumer experiences. Policy Support: Targeted subsidies and wage support mechanisms can ease the burden on the most affected groups without fuelling further inflation. Inflation is more than just a number — it’s a lived experience. While the CPI might suggest that inflation is under control, the pressures on your personal budget, emotional wellbeing, and lifestyle say otherwise. Whether it’s the hidden shrinkflation at the shops, the widening gap between wages and living costs, or the gnawing anxiety of financial uncertainty, the full weight of inflation is felt more deeply than the official figures can ever fully capture. We need broader conversations and better tools to reflect the economic reality most people are facing — because until we measure inflation in ways that account for real people’s … Read more