Domesday Live

Inflation is falling, so why does everything still feel so expensive?

Inflation is the speed prices are rising, not how high they are. When it falls from 10% to 3%, prices are still going up, just more slowly, and they do not go back down. Prices are now much higher than a few years ago, so the cost of a weekly shop or a bill is permanently higher.

Why it happens

• Prices rise, they rarely fall back. A fall in inflation means prices are rising more slowly. They only fall in a few cases, such as energy. So the level stays high.
• Wages have to catch up. Pay lagged behind prices in 2022 and 2023. Real pay is now growing again, but many households are still catching up to where they were.
• Some costs have risen more than average. Rents, mortgages, energy and food take up a bigger share of a typical household's budget than the headline index suggests, and they have risen faster than the average.
• Fixed costs reset at once. Mortgages, rents and energy tariffs reset once a year or every few years, so rises arrive in steps rather than gradually.