Posted Feb 22 2023 at 06:19 PM
Anti-inflation basket in supermarkets, request for a gesture from Total on the price of diesel at the pump… In the midst of a storm over pension reform, the question of purchasing power continues to preoccupy the government. Rightly, if we believe the study published this Wednesday by the French Observatory of Economic Conditions (OFCE). This shows that the shock suffered since the end of 2021 constitutes an attack, unprecedented since 1990, on the standard of living of the French, even though it might have been even more brutal without the billions poured out by the State.
The OFCE has thus calculated that the reduction in purchasing power should be between 1.2% and 2% at the end of 2023 compared to the situation at the end of 2021. This represents a drop of 120 to 190 euros per consumption unit ( economists’ way of taking household composition into account) and by quarter.
Stagnating standard of living
This fall would erase the gains made between 2020 and 2021 thanks in particular to “whatever the cost” and the rebound in activity, so that in the worst-case scenario, the purchasing power of the French would return to its level of 2019. This four-year stagnation would mark a break from the upward trend of 0.9% per year on average observed since 1990.
For 2023 alone, the French people’s wallets should be affected by a reduction in real labor income, while the strong recovery in employment had pulled them up in the two previous years. The fault, this year, with a drop in the real wage caused by inflation, which might affect the wallets of the French up to 130 to 364 euros per unit of consumption this year.
However, the note by OFCE economists Pierre Madec, Mathieu Plane and Raoul Sampognaro shows that the brakes would have been much stronger without government aid: without measures on energy prices (tariff shield and rebate fuel), the decline in purchasing power would have been 5% over two years in the worst case. These devices represented a boost of 790 euros on average last year per consumption unit and this should rise to more than 1,000 euros in total by 2023.
The most modest helped
The study calculates that these measures ultimately helped the most modest (+5.1% for the standard of living of the 20% most modest French people) more than the wealthy French (+2.2% for the 20% of households the most rich). This does not prevent the former from remaining the most affected by the current situation, insofar as the soaring energy prices are degrading their standard of living much more than for the richest French people: this has downgraded by 3.5% for the former, and by 1.7% for the wealthiest French people.
But the level of income is far from being the only prism through which we can apprehend the current inflationary shock. The OFCE economists show that the rise in prices (also taking into account food) was much higher for the elderly (+0.6 points compared to average inflation in 2022) and those residing in rural area. What justify a little more that the State quickly switches to aid devices that are even more targeted.
Aid targeting
“The merit of the tariff shield is to have enabled France to quickly have a support mechanism. We now have to think regarding another support mechanism, and we might take inspiration from what is being prepared elsewhere in Europe, such as in Germany, where the idea is to link compensation in part to past household consumption,” analyzes Xavier Ragot, President of the OFCE.
Beyond the tariff shield alone, the government will be able to claim that its budgetary policy will also have given a boost to the standard of living of households. The OFCE shows that the disposable income of the poorest 5% of households will have increased by 400 euros in 2022, an increase of 4.5%. This is mainly the effect of the early revaluation of social benefits, the exceptional back-to-school aid and the energy check.
Middle-class and wealthier households have benefited from the early revaluation of pensions and the continued abolition of housing tax.