Why almost everything so expensive in life? | Cost Of Living Crisis Explained

Cost of Living Crisis, Our income is not increasing but our Education, Housing, Healthcare Costs expenses are increasing every day! And it is happening with everyone.

Introduction

You have enough money to cover all of your expenses as of right now. But think for a moment that if the inflation rises so much that you’re not even able to manage your basic expenses then what will you do in such a situation? Because of you, myself, and every other person alive today, this question has turned into a major issue! Our income is not increasing but our expenses are increasing every day! And it is happening with everyone.

But the thing is, how did this situation come before us? What impact does it have on our lives? And most important, what can we do so that inflation doesn’t affect us?

What is the cost of living crisis?

The cost of living is the amount that is needed to manage basic expenses like housing, food, taxes, healthcare all these things.

This cost of living is calculated so that a particular city can be compared with another city which city is more costly? Like, you would have heard someone saying that Mumbai is costlier than Delhi! So, this comparison is done based on the cost of living. Now suppose someone doesn’t have enough money to manage the basic expenses, and the condition of that particular person is called the cost of living crisis.

Where does this cost of living crisis start from?

Inflation takes place when the price of a good or service keeps increasing with time! This happens in these two ways! First is that the demand for a particular good or service has increased a lot. So, the demand has increased but the supply is limited. So, here the price will increase. And this is called demand-pull inflation! On the other hand, suppose the cost of that particular good or service increases a lot, then also, the price of that thing will increase. And this is called cost-push inflation!

So here, no matter how much you try things will keep getting expensive with time! Like for suppose, let’s take the example of healthcare! If we look very carefully then in the year 2021 you know, how much the healthcare inflation of our country was? 14%. Whereas other countries like China, Indonesia, and Vietnam, were much more than all these countries. But you know, when the inflation rises so much that people are not able to manage their basic expenses then it leads to the cost of living crisis. Let’s understand it with an example. Today, the average salary of a person is 25k rupees.

But if we look at his expenses then that is around 15k rupees. Which includes rent, electricity, food, and all these things. Rest 10k rupees, either he can save that amount or he can use that money for other things. But here, if the basic expenses increase to 20k rupees and his salary doesn’t increase then he will face a lot of problems. And because inflation doesn’t wait for anything it happens with all of us.

What are the reasons behind the cost of the crisis?

What happens if we become its victim even if we don’t want to? Well, if you want to understand it then first, we have to understand these 5 big factors-

• Housing cost-

Limited housing supply increased demand for houses and not making the policies properly while designing them due to all these things the prices of houses increased rapidly!

Due to this, people face these two problems-:

1. In which the first problem is that because house has become so expensive people don’t buy houses now.
2. And the second problem is that because houses have become expensive now, the rent of houses also increases a lot. So, it becomes very hard to get a house for rent. And obviously, whether you buy a house and live or you live on rent in both situations the cost of living will increase for sure.

• Healthcare expenses-

The cost of healthcare puts a huge financial burden on people. Because if we look very carefully then advancements are going on in medical technology the price of medicines is rising and the cost of administration is increasing.

And our population is also increasing. So when all these things will happen then healthcare will be definitely expensive.

• Education cost-

Education is an important part of the cost of living of a person! It includes the tuition fee, the cost of his textbooks, the food he eats in school, and all these expenses! Now when all these things get expensive then the cost of his education increases. And when it happens the financial burden on a particular family increases.

• Stagnant wages and salary-

Has it ever happened to you? The cost of living is increasing rapidly but your salary isn’t increasing with that speed? And when it happens it’s not your fault in it! Many times, the economic factors aren’t in favor of your salary increases. Why and how it works, you will come to know about it later.

• Energy and fuel price-

Whenever, because of geopolitical tension the price of crude oil increases then the fuel price increases. When it happens in this case, the transportation cost of that particular good will increase and because it becomes expensive then the good that consumer gets at the end, the price of that good also increases.

And obviously when it happens then the cost of living increases very much! Here, to cope with this challenge either they save money or those, who have more money put money in FDs so that their money also increases with increasing inflation and the inflation doesn’t bother them much! But you know you notice, whenever you go to find a good FD you will face a lot of problems.

How cost of living crisis will impact our lives?

Whenever someone faces a cost of living crisis the families and individuals manage their expenses they try to make more money! For which, either they do overtime in an existing job or they change their job! And when things don’t go well in both situations then people start spending less! To understand it deeply, let’s take the example.

the story of 47-year-old Sarika, living in Delhi! She didn’t buy new clothes on Diwali because she didn’t have money to buy new clothes. That’s why I wear old clothes.

It happened because the monthly food expenses have increased family expenses have increased rent has increased! Because all these things are getting expensive she has to reduce her other expenses. And I am telling you about December 2022 when the retail inflation in India was 5.72%. But we see today, in August 2023 it has increased to 6.83%.

How cost of living crisis impact businesses and the global level?

To understand that let’s understand these three different steps.

• Step 1-

Changing consumer habits- The Consumer Confidence Survey of RBI was released in September 2022 according to that survey 88% of the people said that their salaries aren’t increasing according to their expenses.

In fact, RBI has also said in its survey that because the price of the daily needs of consumers is increasing here, the consumers are changing their habits! Due to this, these three habits have started forming in the consumers. In which the first habit is, reduced non-compulsory spending. Whenever the inflation increases rapidly then all the extra expenses, apart from basic expenses people cut down on them! Like, they won’t go out to eat food won’t watch movies won’t buy luxury items! The expenditure on all these things starts decreasing.

• Step 2-

Increased savings- As inflation increases people cut down their expenses and start increasing their savings. Because whenever things get expensive people don’t know, how long will this inflation continue?

• Step 3-

Shifting to low-cost alternatives- Whenever inflation increases people start looking for alternatives. Like, suppose, if someone was wearing premium brands then because things got expensive now he would shift towards generic brands! Now, the habits of the consumers are changing.

How behavior of the consumer affects Business?

Thing to understand here is that whenever the behavior of the consumer changes in the market it affects business in these four ways-

• The first effect is a reduction in consumer demand-

When people start spending less on useless products, then the demand for those particular products decreases! When the demand for those products decreases then the business that was selling that product their revenue decreases.

• The second effect you will get to see is Price Adjustment-

Whenever inflation increases company increases the costs like delivery costs or convenience fees, so that the product looks a little expensive but the company keeps its product margins safe.

• The third effect is Changes in product mix-

Now because inflation is rising the consumers in the market are becoming price-sensitive. By keeping this in mind, the businesses will have to produce goods cost-effectively and will also have to keep their prices low, so that the consumer can afford all these goods.

• Fourth effect which is Wage pressures-

The company already has many big challenges their profit margins are decreasing but the cost of living crisis of the employees is increasing because things got expensive in the market. So here, a lot of companies face this problem how to increase the salary of these employees? Because our margins are decreasing because their cost of living is increasing.

Why Employee Salary is not increasing?

So when the salary of most people doesn’t increase then understand, it’s not just your mistake, a lot of factors play a role behind it. Now it is obvious that if businesses are getting affected because of the cost of living crisis then it would definitely cause an international global impact.

And when it happens, then it happens through these two ways-

1. Exchange rate- Whenever the inflation in a country increases so much then its exchange rates get affected! And the country faces lots of problems in exports and imports. It happens because whenever inflation increases in a country the currency value of that particular country that value decreases.

Because inflation is reducing the purchasing power of the country! And ultimately, the companies of that particular country import more and do export less. Because the value of exports has decreased.

2. Supply Chain Disruptions- Whenever the cost of raw materials, transportation, and energy increases the supply chain gets disrupted.

And whenever it happens then the company faces a lot of problems in procuring the products! Due to this global supply chain disruption, the input cost of the companies increased a lot!, Its examples are Unilever, and Suzuki Motor Corp. homegrown JSW Steel if you have a look at their products their products have gotten expensive.

And it’s very simple, when the price of these products increases then the cost of living of people increases. When the cost of living increases then a lot of people get to see a cost of living crisis! Whenever it happens it will affect businesses further and when the business gets affected then more people will get affected. So basically it’s a cycle, that keeps going on!

Who is responsible for expensive things in India after COVID-19?

So if we talk about the people coming from foreign countries to India for them, the top most expensive cities are in India.

the first one is Mumbai which comes on the 15th rank then comes Bangalore which is on the 16th rank, and then comes Pune which is on the 18th rank! And these three cities are among the top 5 expensive cities in India. But yes, if we talk about overall Asia from a cost-of-living perspective, India is not that expensive! But still,

Why do Indians have such small hopes about financial and economic conditions?

If you see the most relevant proof of it then that is the Consumer Confidence Index, or Consumer Situation Index. Every year, RBI releases CSI in India, which tells whether the consumers will spend more or less money! If we compare the CSI of March 2015 with that of July 2023 it has reduced from 126.7 to 116.6. This means that an Indian consumer is spending much more today than what he was spending in the year 2015.

In July 2023 the retail inflation of India was 7.22% means that it was an all-time high! But it decreased to 6.83% in August, which is a good thing but it didn’t cause a great impact. Because if we see the electricity inflation then it has increased from 3.67% to 4.31%.

Why Fuel and Electricity prices are increasing?

The Russia-Ukraine war that has been going on for the last two years due to, Saudi Arabia and other OPEC+ nations have cut the fuel supply a lot, due to which the fuel prices have increased a lot.

And when fuel gets expensive the prices of electricity also increase. In our country, more than 85% of workers are employed in the unorganized sector, due to which their salary doesn’t increase according to inflation! This means that if things are getting expensive then it’s not that their salary will definitely increase.

Let me show you some data. Between April 2021 to March 2023 the Indian construction workers and agricultural workers you know, how much their salary has increased? 10.5% and 12%. But here if you look very carefully the cost of cereals for kids has increased by 22% milk got expensive by 14% and the fuel prices got expensive by 16%.

So here, you can see very clearly that the salary of the workers has increased but not according to the inflation! Inflation has increased more than salary! This is the reason why today, the gross savings of Indian households are at a 23-year low! In the last 23 years, people have been making maximum savings this year.

How to save yourself from the crisis of Inflation?

Well, if you want to do this, then you have to take care of these three things properly!

• Budgeting-

For them. If I talk about myself then I keep two accounts. I transfer as much money as I have in my budget from my main account to that bank account. I have to spend that much money! If it goes beyond that then I won’t be able to spend.

First of all, prepare a budget by keeping your income and expenses in mind, you are setting your budget for how much money you need for rent, electricity, and travel.

The money I have put in this account according to my budget is the final amount. Now all the spending will be in this budget. This is my way of managing the money! If it suits you, you can do this.

• Reduce Debt.-

Apart from budgeting, the thing you have to take care of is that you should have debt as little as possible. Avoid using credit cards as much as possible. I use credit cards myself but I use them because I know that I have enough money in debit cards. If you want to use a credit card then you have enough money in debit.

If you want to avoid the cost of living in the long term then you must have some investments. I am not a financial adviser, so if you want to invest money in any of these investments, then you can take the help of a financial adviser.

• Save and Invest-

If you have a habit of saving regularly taking less risk and fighting inflation then I would suggest you that put money in FD.

Apart from doing these three things, there are three such factors which you have to study very carefully so that you understand how I have to do my preparation!

How to prepare yourself for the crisis of Inflation?

• Consumer Price Index-

Suppose, a person keeps an eye on the CPI of his country! So you know, as soon as the CPI increases the price of goods and services will start increasing! By seeing the increasing CPI, you can get to know how much inflation can increase in the coming time! And you can prepare yourself accordingly.

• Supply and Demand dynamics-

Suppose, you work in the construction industry! So, you know what if you analyze its supply and demand dynamics closely then you will get to know what as these things are getting expensive and what impact it will have on other things! And when you will get to know that impact then you will get to know before sometime that the inflation is about to come and if it’s about to come, then to what extent it can go! And you can manage your things accordingly.

• wage growth-

It is the most basic thing. If you’re working somewhere then you compare your salary and rising inflation! If your salary is increasing at the same rate as things are becoming expensive, then it’s fine, but if it’s not happening, then figure out, why it is happening.

Is that business not doing well? Or are my skills lacking that my salary isn’t increasing? Or there would be any factor behind that. Suppose, if it happens with you for a very long time, then either you increase more income streams, or you can change your job! Because see, no matter how much you try things will get expensive with time.

Conclusion

The concept of the “cost of living” is encompassing essential expenses like housing, food, taxes, and healthcare. We unveil the critical factors contributing to this crisis, including inflation, skyrocketing housing costs, soaring healthcare expenses, rising education fees, stagnant wages, and fluctuating energy and fuel prices.

the causes of crisis and its significant effects on people and families throughout the country. how individuals and families are grappling with this crisis, often resorting to overtime work, job changes, reduced spending on non-essentials, and a shift towards more cost-effective alternatives.

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