What is the impact of inflation on households?

What is the impact of inflation on households?

The inflation that France has been facing since 2021 has many consequences for households. The rise in prices weighs on their purchasing power overall, but it impacts the population in a heterogeneous way. Decryption.

Inflation weighs on household purchasing power

According to data published by the National Institute of Statistics and Economic Studies (INSEE), the consumer price index – the main measure of inflation – rose 5.2% in May on an annual basis. Due to its favorable energy mix and the various measures making up the “tariff shield”, the inflation rate in France is among the lowest in the euro zone. The fact remains that we have to go back to the early 1980s to find such levels of inflation.

What outlook for inflation?

evolution future inflation rates is closely related to that of war in ukraine, particularly uncertain at the present time. In its latest macroeconomic projections, the Banque de France expects prices to rise in France by 5.6% in 2022 and 3.4% in 2023 in a “central” scenario. This scenario, considered more likely at this stage, is based in particular on the assumption of a complete embargo on Russian coal. In a “degraded” scenario, built on the assumption of a total stoppage of European oil and gas imports from Russia, inflation would reach 6.1% in 2022 and 7% in 2023.

This return of inflation has many economic consequences. It weighs in particular on the purchasing powerthat is to say on the ability of households to buy goods and services with their income.

Indeed, since the prices increase faster than income, purchasing power declines: each household can purchase fewer goods and services with its total income.

According to calculations by the French Economic Observatory (OFCE), the purchasing power should, in France, fall by 0.8% on average during the year 2022. If this forecast were indeed realized, it would be the first drop in household purchasing power recorded since 2013.

Inflation has a differentiated impact on households

The fact has long been known to economists – and the work of Xavier Jaravel, winner of the prize for the best young economist in 2021, recently reminded us: inflation does not impact all households in the same way.

Inflation is, in fact, apprehended from the evolution of the price of an “average” basket of consumption. The inflation rate, which is omnipresent in the news, is therefore a mean and mask disparities which can be strong between different households.

Households most affected by inflation

Among the households affected by the current inflation are the modest households and those living in a rural community. INSEE estimates that households at the bottom of the distribution of living standards face inflation that is 0.4 percentage point higher than average inflation, while households making up the wealthiest 10% are experiencing inflation that is 0.1 point lower than the consumer price index. Similarly, for households living in a rural municipality, inflation is 1 percentage point higher than the price increase recorded on average.

Reading the chart: in April 2022, average inflation was 4.9% at an annual rate. It was higher by 1 percentage point for households living in a rural commune.

In a general way, the differentiated impact of inflation on households is currently mainly explained by energy. While energy prices are rising at a considerable speed – 28% increase at an annual rate in May 2022 – the households most affected by inflation are those who cannot reduce their consumption in the short term. .

This is for example the case of households forced to use an individual means of transport in their daily life.

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