Why 60% of Households Feel Worse Off Even Though Inflation Is Cooling

Headline inflation is falling, yet more households than at almost any point since the depths of the 2022 cost-of-living crisis say their bills are still rising. Understanding why both things can be true at once matters for how you budget for the months ahead.

The headline number vs the lived experience

Official ONS data released 22 July showed UK CPI inflation at 2.6% in the 12 months to June 2026, down from 2.8% the previous month — on paper, a continuation of the broader cooling trend from the 2022–23 peak. Yet ONS public opinion survey data released the same month found that 60% of households in Great Britain reported their cost of living had increased in the previous month — the highest share since late 2022, even though it remains well below the 91% peak recorded in August of that year.

Why the two numbers diverge

CPI is a basket-wide average, weighted across everything from clothing to electronics to holidays — many of which have seen genuine price falls or stayed flat. But the categories driving day-to-day household stress — food, energy, transport fuel and housing costs — have moved differently from the average, and some have moved in the opposite direction entirely. Rising fuel prices linked to Middle East tensions pushing crude oil above $100 a barrel have fed through to petrol pumps and, with a lag, to the Ofgem price cap, which stands at £1,862 for July–September 2026 with forecasts pointing toward a range of £1,747–£1,899 for October, confirmed 26 August. When the specific things you buy most often rise faster than the basket-wide average, the CPI headline can genuinely understate what any individual household is feeling.

There's also a distributional effect: lower-income households spend a larger share of their budget on exactly the categories — food and energy — that have proven stickiest, meaning the same headline CPI figure can represent a much harsher reality depending on where you sit on the income scale. The ONS's own Household Costs Indices, which break inflation down by household type rather than using a single national average, consistently show this gap.

What this means for your budget

• Don't budget off the headline CPI figure alone. If your own spending is weighted toward food, fuel and energy, your personal inflation rate may be running meaningfully hotter than 2.6%.
• Revisit fixed costs before October. With the Ofgem cap forecast to shift again in the autumn, locking in a fixed energy tariff now, where available, can offer more certainty than waiting.
• Track your own basket. A simple monthly log of your five or six biggest recurring costs will tell you more about your real inflation exposure than any national statistic.

International comparison

This "headline vs felt" inflation gap isn't a uniquely British phenomenon. In the US, the Bureau of Labor Statistics' CPI has faced similar criticism for understating perceived inflation among lower-income households, prompting the creation of alternative measures weighted toward essential spending. The EU's Harmonised Index of Consumer Prices (HICP) allows for cross-country comparison but faces the same basket-weighting critique domestically in higher cost-of-living member states. Australia's Melbourne Institute publishes a separate "inflation expectations" survey alongside the official CPI specifically because of this same gap between statistical and felt inflation.

Key Numbers

• 2.6% — UK CPI inflation, 12 months to June 2026
• 60% — households reporting a cost-of-living increase in the previous month, per ONS survey data
• £1,862 — current Ofgem price cap for July–September 2026
• 91% — peak share of households reporting rising costs, August 2022

Sources

• Live: UK inflation slows to 2.6% in June — MoneyWeek
• Great Britain cost of living increase 2026 — Statista
• Household Costs Indices for UK household groups — ONS
• Energy price cap — GOV.UK

Educational content only — not financial advice.