What’s the difference between a recession, a depression and a cost of living crisis?
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Think of the total amount of ‘stuff’ produced in a year in your entire country. This comprises physical goods from factories and farms, but also services such as legal work and entertainment.
The general trend since the Industrial Revolution (300 years) is that this total amount of stuff produced each year is increasing. An increase of 2-3% per year has been typical in the developed world for the last century.
Occasionally, the total amount of stuff produced goes down slightly. (Maybe by a couple of percent). When this happens it is called a recession. Typically these might happen about 1 year in every ten. So the economy kind of takes 9 steps forward then 1 back. Some people may argue about the frequency of recessions but it’s really not important for this explanation.
A particularly large recession, such as the big one in the 1930s is called a depression. There’s no fixed rule for how big a recession needs to be to be called a depression. Some people called the 2008-9 recession a depression. Some people call the current situation a depression.
Inflation is a measurement of the average amount that prices go up each year. Over the last few decades in the developed world, annual increases of around 2% have been typical. At the moment inflation is higher, it varies by country but in the UK where I am it has exceeded 10% over the last couple of years.
The “Cost of Living Crisis” is really a term made up by the media to describe the current state of affairs where the high inflation has caused many people difficulties in buying necessary goods. There’s no fixed definition for how high inflation needs to be for it to constitute a crisis, it’s subjective.
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