Inflation is at its highest level in the euro zone and the EU for more than 20 years. She has reached nearly 10% within the EU in July. The three Baltic countries are the Member States most burdened by inflation: Estonia exceeded 23%, Latvia and Lithuania being respectively just above and below 21%. For the rest, it is mainly the countries of Eastern Europe that are suffering from the sharp rise in prices.
At the other end of the spectrum, France and Malta are doing the best with “only” 6.8% inflation in July. In particular, Malta has still not raised state-regulated energy prices, thus artificially keeping inflation at zero in this area.
Compared with the standard of living, inflation figures show that it is generally higher in countries where living is cheaper than the European Union average. Fourteen countries where living is cheaper have higher inflation rates than the EU (9.8%) compared to only two Member States (Belgium and the Netherlands), where the inflation rate and the levels of prices are higher than in the EU. In more expensive countries, average inflation rose to just over 9% in July compared to 14% for countries where living is cheaper.
On average in the EU, people lose 25% of their income between the ages of 64 and 75, when they retire. In Bulgaria, these incomes are almost halved. Moreover, in all Member States, men earn more than women. On average, the median salary for men is 4% higher than the median salary for women of all ages. Thus, retired European women are those who receive the lowest incomes.
However, inflation is generally quite high in countries where women receive less, making them particularly vulnerable to rising prices. In Lithuania, the third worst inflation rate in July with an annual variation of 20.9% compared to July 2021, the income of women over 75 was in 2020 961 euros lower than that of men of the same age while no minimum old-age pension is offered by the State. They are the ones with the lowest incomes of all age and gender categories in the country, earning nearly 39% less than women aged 50 to 64.
Social transfers do little to reduce the risk of poverty in the country compared to the rest of the EU. With almost 30% less risk, Lithuania was in 19th place for this criterion within the EU in 2020-2021; high inflation therefore weakens the poorest people even more.
Most corrective measures reduce the risk of poverty in countries where inflation is lower. In the countries where living is less expensive, the average rate of reduction of the risk of poverty by social transfers is 31.6% against 42.3% for the most expensive countries.
In Estonia and Latvia, the minimum wage shows a fairly marked difference with the median wage (€365 and €236), even if the difference is less marked than in Luxembourg (€840) or Malta (€561), but the recipients must face a much higher rate of inflation; the inflation rate in Estonia and Latvia was over 20% in July compared to 9.3% and 6.8% for Luxembourg and Malta.
The six countries (Austria, Cyprus, Denmark, Finland, Italy and Sweden) that do not offer a minimum wage allowing the lowest paid workers to cope with rising prices have inflation rates close to the average of the EU (between 8.3% and 10.6%). Cyprus stands out in this group for the difficulties encountered by the inhabitants in heating their homes. This country of the South is, in fact and counterintuitively, the country where this criterion was the highest in 2021.
However, apart from Hungary where the state regulation of energy prices means that inflation is for the moment mainly due to the increase in food prices during this summer, energy is the main fuel of soaring prices in the rest of the Union.
In the case of Cyprus, where petroleum products account for almost 60% of the country’s final energy consumption, liquid fuels, including heating oil, is the item where inflation was the strongest this summer with a rate of change annual increase of +80% in July. If these figures do not explain the causes, they show the difficulties to which the poorest Cypriots are exposed in the face of the increase in the prices of the main source of heating on the island. Thus, while the government’s first measures were aimed at reducing electricity bills, on July 28 the Cypriot executive announced that it will absorb the rise in household energy bills from the autumn. Protection will be total for the poorest households and will be staggered between 50% and 85% for the others, aiming to cover half a million households.
In Estonia and Lithuania, the situation has only persisted since last year. In 2021, the two countries were already in the top quartet of inflation behind Poland and Hungary. And energy was already the item that increased the most. In Estonia, the price of gas started to soar from the second half of the year to reach an inflation rate of almost 260% in July this year. In 2020, gas only represented 8% of the country’s final consumption, but Eurostat estimated that the same year it was 80% dependent on Russian gas. In July, the price of natural gas was €4 higher than the European average in Estonia at just over €18 per kWh.
L’institut bruegel a calculé that the countries of the European Union had already devoted 236 billion euros from September 2021 to August 2022 in one-off corrective measures to help deal with energy inflation (excluding Portugal and Hungary), with measures such as energy vouchers , rebates at the pump…
Relative to GDP, it is Greece and Lithuania that are making the greatest financial efforts, with respectively 3.7% and 3.6% of their GDP spent on aid. Both countries reserve some of this aid for the poorest households. In Lithuania, measures specifically target the elderly, who have been shown to be particularly vulnerable, or employees earning the minimum wage.
Estonia, 23.2% inflation in July, devotes only 0.8% of its GDP to this aid according to calculations by the Bruegel Institute but concentrates its efforts on households with the lowest incomes. According to the Minister of Public Administration, Jaak Aab, this measure will benefit 380,000 Estonian households, including households of pensioners who are the ones who lose the most income between the ages of 64 and 75 and over in the EU (-42% drop in median income in 2020).
The situation is still likely to change in each Member State during the autumn and winter with the gradual implementation of aid measures depending on the country and the increase in demand for heating. And all the more so since, without any real surprise, inflation continues to increase in the euro zone according to the first estimates, rising from 8.9% in July to 9.1% in August. Paolo Gentiloni, European Commissioner for the Economy, explained on Euronewsthat in any event, what is specifically requested of the Member States “is that [leur] reaction is, as far as possible, temporary and targeted, that is to say, it is intended for households that have the most difficulty paying their gas, heating or electricity bills. And these are low-income families.“