We study changes in the cost of living, real incomes, and debt in comparison to households’ evaluation of their own economic well-being. In particular, attention is given to developments in the years following the pandemic, a period characterized by rising inflation and interest rates.

The report first describes developments in the prices of various consumer goods as measured by the Norwegian Consumer Price Index (CPI). In the years following 2020, consumer prices increased significantly, but we find little evidence that households were differentially affected by inflation: There is no clear tendency for the typical consumption basket of low-income households to have become relatively more expensive compared to that of middle- or high-income households. Furthermore, we show that the growth in rental prices of housing was below the total rate of inflation across all goods in the CPI. By contrast, homeowners with large mortgages experienced substantial increases in interest payments.

We use different income measures to assess whether nominal income growth has been sufficient to compensate for higher inflation. We find that the period after 2015 is characterized by rather small rates of real income growth. In 2022 and 2023, we find a moderate increase in real income among renters and homeowners with low mortgage debt. Among households with large mortgages, there is a reduction in disposable income after deduction of interest and housing costs. Homeowners with large mortgages experienced real income growth from 2015 to 2021, but this increase was reversed from 2021 to 2023, when we account for higher interest payments.

The vast majority of highly indebted homeowners are either middle- or high-income earners. Hence, generally they have economic capacity to finance increased borrowing costs. Among borrowers, it appears that savings increased during the period of higher inflation and interest rates. For example, the share of households with a high debt-to-income ratio has declined. This decline is partly associated with borrowers’ inflation gains on their debt: Most households obtained substantial nominal income growth during the period of high inflation, which mechanically reduces the debt burden for a given level of nominal debt.

The report discusses the evolution of various indicators of economic well-being, distinguishing between objective and subjective indicators. Objective indicators are provided through statistics on prices, expenditures, income, financial assets, debt, and unemployment. Subjective indicators account for individuals’ perceptions of their own economic situation. We show that the proportion of people reporting that they suffer from adverse living conditions increased markedly after 2021 according to EU Statistics on Income and Living Conditions (EU-SILC), whilst the negative trends are even more pronounced in the survey of consumer sentiment reported by the Governmental Institute for Consumer Research (SIFO).

Taken together, the evolution of most objective metrics indicate that the economy of Norwegian households is performing rather well in comparison to the evolution of consumer sentiment. The divergence between subjective and objective economic indicators is considered a paradox, and we discuss various theories and empirical evidence that may help to explain this paradox. Reasons may partly stem from methodological challenges in measuring the objective and/or subjective indicators. Moreover, the EU-SILC survey shows that it is primarily among homeowners, and not tenants, that more people report exposure to economic strain and poor living conditions. Thus, interest rate increases may be an important part of the story about why more households perceive greater economic insecurity and material deprivation.