Shifting consumer habits affect how cost-of-living changes are worked out

Have you ever wondered how the monthly inflation figure is calculated?

Well, imagine a shopping basket full of everyday items like bread and milk, along with bigger purchases like cars and televisions.

The Office for National Statistic (ONS) tracks the price of what’s in that basket every month - and the headline inflation figure shows how much it’s changed.

But consumer behaviour is evolving all the time.

So it’s important that what the ONS has in its imaginary shopping basket changes too, so the data accurately reflects people’s lives, tastes and habits.

What’s new in the inflation basket?

The ONS has just added a few new items to its basket, including: 

• houmous
• alcohol-free beer
• dashcams
• pet grooming services

At the same time, a few items have been taken out of the basket or adjusted.

For example, single sheets of wrapping paper have been replaced with full rolls.

And hotel prices won’t be measured in the same way.

Hotel prices can fluctuate a lot depending on events, holidays or local demand. 

So instead of tracking prices at a single moment, the ONS will now collect data six weeks in advance for two different nights each month.

What do the changes say about British shoppers?

Many of these changes might seem small, but they offer a very real insight into how our spending habits are changing.

As Maike Currie of PensionBee notes, they reflect “healthier lifestyles, changing technology and the growing role pets play in household spending”.

“Many of these shifts were kickstarted during the Covid pandemic, but now look firmly entrenched in how households live and spend today,” she commented.

Danni Hewson, head of financial analysis at AJ Bell, agrees that habits forged since the pandemic have stuck.

“Houmous has been a staple of lunch boxes for years,” she said.

“But as a plant-based source of protein and fibre, it’s becoming more and more popular. 

“This trend has been exacerbated as take up of weight loss drugs continues to grow.

Ms Hewson added that the “constant evolution” of technology looks set to “keep the ONS on its toes” in the next few years.

For example, she said the appearance of dashcams in its inflation basket reflects the “plethora of options now available to drivers looking to keep insurance costs down”.

What’s going to happen with inflation?

The changes to the basket come at a time when the cost of living is firmly on the agenda.

Inflation fell to its lowest level in almost a year in January, and the Office for Budget Responsibility had predicted it would return to target in the second half of this year.

But the US-Israel war with Iran has changed the picture completely, causing global oil prices to surge and fuelled fears of a rise in the cost of living.

If higher oil and gas costs feed through to household bills, inflation could remain higher than expected for longer, and households will feel that.

“The return to stable inflation could prove bumpier than expected,” said Ms Currie of PensionBee.

Danni Hewson of AJ Bell added: “With many households bracing themselves for inflation to edge back up, the impact of rising costs will remain at the forefront of many people’s minds as they strive to budget for the life they want to live.”

How to manage rising costs

If you’re worried about the possibility of the cost of living going up sharply, then there are practical steps you can take that could make a difference.

Get on top of your budget

Make sure you know how much money you have coming in and where it’s going.

You can then prioritise your spending and work out where savings could be made.

Check out our guide to how to create a budget to get started, and give our budget planner a try - it’s free and easy to use.

Check what benefits you can claim 

Find out if you’re eligible for or missing out on any government support.

Try our benefits calculator or get in touch to see if you’re getting all the help you’re entitled to receive.

Deal with problem debts

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