When the Price Falls but Life Stays Expensive
Article by Ayman Fouad Abdelgawad
Why slowing inflation does not reverse earlier price rises, and why households can still struggle after the headline figures improve.
Inflation is usually announced as a rate, but it is lived as a revision of ordinary expectations. The weekly shop becomes an exercise in substitution. A familiar bill acquires the power to unsettle an evening. The number may later fall, yet the household does not return to the old price level. It merely receives the news that prices are now climbing more slowly from their higher floor.
This is the first dilemma. Central banks can suppress demand by making credit dearer, but the medicine reaches people unevenly. A homeowner refinancing a mortgage feels it immediately. A renter may meet it later through a landlord's costs. A saver can benefit. A young business may abandon an expansion. The same interest rate that steadies the currency can weaken the wage bargain of those least able to wait.
Governments face the opposite temptation. They can cushion every shock with subsidies or tax relief, but broad support may preserve the very demand that monetary policy is trying to cool. Targeted help sounds tidier until an eligibility line divides two households whose lives differ by a few pounds. Economic precision is admirable on paper and often rather blunt at the kitchen table.
The deepest injury is not statistical. Inflation redistributes confidence. People with assets, bargaining power and financial advice can adjust; people living close to the edge absorb the surprise in food, heat, travel and postponed care. A society may record disinflation while millions remain permanently more cautious.
My reflection
I have come to distrust the phrase “inflation is under control” when it is offered as though the public should feel restored. Control is important, but restoration asks different questions. Did wages recover? Did essential costs become manageable? Did families rebuild the savings used to survive the shock? A successful policy should be judged not only by the calmness of the index, but by whether ordinary life has regained room to breathe.