Official inflation vs. real cost of living
- admin474127
- Apr 28
- 7 min read
Updated: May 8
A full shopping cart, a paid electricity bill, a small budget for the next trip – that already sounds like a true luxury to many people in Germany. While high earners can still spend relatively comfortably despite rising prices, low earners are increasingly struggling to cover their basic expenses. Rent, energy, and food often consume more than half of their income. The scope for leisure, consumption, or savings is shrinking ever smaller. A recent spending analysis shows how drastically the financial burden has developed between 2020 and 2024 and why this gap is continuing to widen.
The so-called "basket of goods" of the Federal Republic of Germany, which is used to calculate the Consumer Price Index (CPI), currently comprises approximately 700 types of goods. These represent the typical consumption expenditures of private households and are divided into twelve main categories, including food, clothing, housing, health, transport, and leisure.
Within these commodity categories, numerous specific products and services are monitored. A total of over 300,000 individual prices are collected monthly to reflect price developments as realistically as possible.
The shopping basket is revised regularly, usually every five years, to take into account changes in consumer behavior and new products.
The change in the shopping basket over time
The shopping basket in Germany has changed considerably over the past 60 years, both in terms of content and structure. Let's examine some of the differences over time.
Change in consumer behavior
In the 1960s, the largest share of income was spent on basic needs, such as food, clothing, and housing. Today, the share spent on food has declined significantly. In contrast, spending on leisure, communications, health, and various services has increased significantly. Today, consumption is increasingly understood as an expression of lifestyle and individual freedom.
Technological innovations
Technological developments have massively changed the shopping basket. Products such as smartphones, streaming subscriptions, internet connections, laptops, and e-bikes didn't exist in the 1960s and are now a natural part of everyday life. Conversely, items such as typewriters, record players, and analog cameras have largely disappeared or have significantly lost importance. Innovations have thus created new needs and displaced previous consumer goods.
More diverse offering
The product range today is significantly larger and more diverse than in the past. In the 1960s, there were often only one or two brands or variants of a product. Today, consumers can choose between a wide variety of brands and offerings, for example, between conventional, organic, or vegan products, as well as between standard and premium ranges. This wide selection also affects price developments.
Service orientation
Services occupy a significantly larger space in today's shopping basket than they did in the past. While in the 1960s, consumption was primarily focused on material goods, today services such as hairdresser visits, gym memberships, streaming services, cloud services, and vacation travel have become integral parts of private spending. The service sector is a natural part of modern everyday consumer life.
Environmental and sustainability aspects
In recent decades, environmental awareness and sustainability have gained considerable importance. Today's shopping basket takes into account aspects such as purchasing green electricity, energy-saving products, waste disposal fees, and the conscious consumption of sustainable goods. In the 1960s, these topics played hardly any role in people's everyday lives.
Social change
Social trends and changing values have also influenced the composition of the shopping basket. Health, work-life balance, individuality, and social responsibility are increasingly determining purchasing decisions. Developments such as the spread of vegetarian or vegan diets, the increased demand for home office equipment, and sustainable mobility demonstrate how social values are reflected in concrete consumer behavior.
While basic necessities once played a key role, convenience, individualization, and digitalization are now central aspects of consumption. These changes have not only given rise to new lifestyles, but have also changed the way inflation is measured today. Regularly adjusting the basket of goods is therefore essential to reflect people's actual living conditions as closely as possible. But is this generalizing instrument even realistic?
The shopping basket of 2025: fiction or realistic instrument?
In principle, the idea of a shopping basket makes sense, albeit with some limitations. One positive aspect is that the shopping basket is regularly revised to better reflect current consumer behavior. For example, new items such as streaming services, electric cars, and organic products are being added. Furthermore, the shopping basket is based on a broad data basis. It draws on household surveys, cash register data, and over 300,000 individual prices collected monthly. This allows it to take into account many different areas of life, from rent to groceries to leisure activities.
Despite all efforts, today's shopping basket is not without significant weaknesses. One important limitation is that the shopping basket only reflects the so-called average household. It therefore cannot capture every individual's life reality. For example, the consumption habits of pensioners, single parents, low-income earners, and high-income earners can differ considerably. Regional differences, such as rental costs between a large city and a rural area, are also not taken into account in detail in the shopping basket. Another problem lies in the speed of adaptation. New products or trends such as vegan food or digital subscription models often take years before they are officially included in the shopping basket. This means that the shopping basket sometimes adapts somewhat more slowly to changing consumer behavior.
The Consumer Price Index (CPI) methodically measures the price difference of the same basket of goods over time. It therefore provides information about how much more expensive the same life has become. As an average value, the CPI thus actually reflects the change in general purchasing power, assuming it corresponds to the consumption behavior of a typical average household.
However, there are limitations and points of criticism here too. The subjective perception of inflation can differ significantly from the official rate. Many people are particularly aware of sharply rising prices for essential goods such as energy, food, or rent, while they are less aware of stable or falling prices in other areas such as electronics.
In addition, not all price drivers are visibly included in the basket of goods. Asset prices such as real estate or stocks are not taken into account, even though they significantly influence the lives of many people. Rising rents or high real estate prices are therefore excluded from the official inflation calculation.
Furthermore, the inflation rate does not automatically reflect the actual cost of living for each individual household. For example, those who have to spend a particularly high proportion of their income on rent or food often feel the effects of inflation much more strongly than average. As a result, their personal price increase can deviate significantly from the official inflation rate.
The massive difference between income levels
Inflation therefore doesn't affect everyone equally. It's often considerably higher for middle and low-income earners than for top earners. The background:
Consumption structure influences personal inflation
Low-income people spend a much higher share of their income on essential goods. Prices for basic necessities often rise disproportionately, while electronics and luxury goods sometimes even become cheaper, but low-income earners can rarely afford them anyway.
Electronics prices push down the inflation rate
A new smartphone or a flat-screen TV becomes cheaper, which mathematically lowers inflation. However, if you can only afford such purchases every five to ten years, this "price advantage" has little significance in everyday life. Personal inflation remains high.
Rents and energy as key factors
Especially for low-income earners, rent and energy often make up the largest part of monthly expenses, and prices are rising particularly sharply there.
Comparison: Low-income vs. high-income household
Let us now look at two fictitious but realistic household examples, a low-income household and a high-income household, both with a similar household size (single person), and compare how differently price increases can affect them.
Low-income earners: Change in spending
output | 2020 | 2024 (estimated) | change |
Rent (including heating) | 550€ | 650€ | 18% |
Groceries | 250€ | 320€ | 28% |
Electricity & Heating | 80€ | 130€ | 62% |
Mobility (public transport/car) | 100€ | 120€ | 20% |
Telecom/Internet | 40€ | 45€ | 12% |
Leisure/Consumption | 100€ | 80€ | -20% (reduced) |
Total expenditure | 1,120€ | 1,345€ | 20% |
High earners: Change in expenses
output | 2020 | 2024 (estimated) | change |
Rent (bigger, cheaper) | 1,000€ | 1,150€ | 15% |
Groceries | 500€ | 600€ | 20% |
Energy & utility costs | 150€ | 200€ | 33% |
Car + refueling | 300€ | 340€ | 13% |
Telecom/Streaming | 100€ | 110€ | 10% |
Leisure/Travel | 800€ | 850€ | 6% |
Total expenditure | 2,850€ | 3,250€ | 14% |
Low-income earners (approx. €1,400 net): Despite cuts in leisure time, the cost of living will rise by approximately 20% from 2020 to 2024. This is significantly higher than the official inflation rate of approximately 12–15% over the same period.
High earners (approx. €4,000 net): The cost of living increases more moderately by about 14%, more in line with the official inflation rate. Furthermore, there is a significantly larger financial buffer.
The comparison shows that low-income earners spend almost their entire income on basic necessities such as rent, energy, and food. Inflation for these goods has been particularly high, which is why this group is particularly hard hit by price increases. High earners, on the other hand, feel inflation less acutely because they have more financial flexibility overall, spend a smaller proportion of their income on basic expenses, and can respond more easily to price increases.
In conclusion, it can be said that personal or perceived inflation for low-income earners is often actually higher than the official inflation rate. The price index only reflects an average, but social differences in consumption patterns mean that the effects of inflation are noticeably unequal for different population groups.
Conclusion
The official inflation rate only represents an average, but it conceals the significant differences that actually arise in everyday life depending on the income and consumption structure.
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If you're interested in exploring this topic in more detail, we'd be happy to offer you a free initial consultation. Let's get started on the right path together!
