Le purchasing power represents the set of goods and other market services that a household is able to perform. In other words, purchasing power is the ability of income to make different purchases. A country with high purchasing power naturally contributes to its development. As a result, the greater the difference between income and the price of market services, the greater the purchasing power becomes.

In this article, we give you ideas to better understand theincreased purchasing power.

How to estimate the increase in purchasing power?

It has been observed that in recent years purchasing power has increased relatively. On the other hand, most French people think that there is a stagnation, or even a reduction in their purchasing power. You should know that between 1960 and 2021, the purchasing capacity of the French is multiplied on average by 5,3.

Moreover, between the beliefs of households and the figures related to purchasing power that economists establish for each country, the discrepancy can be easily noticed. Indeed, when a statistician makes an increase in purchasing power, the household will notice that at the end of the month, it is no longer able to obtain the market goods or services that it could have purchased by comparing to a few months ago.

As a result, it is the evolution, in particular the increase in purchasing power itself, that interests economists, households and politicians.

It is important to point out that INSEE (the National Institute of Statistics and Economic Studies) does not provide any details regarding thechange in purchasing power of each household. For estimate the evolution of purchasing power of each, it is therefore recommended to use converters or simulators found on websites.

What notions should be taken into account to estimate an increase in purchasing power?

The evolution of purchasing power is quite simply linked to that of income (the worker's salary, his capital, the various family and social benefits, etc.) and the prices of market services.

Therefore, if theincreased income is high compared to that of prices, the purchasing power will naturally be more increased. Otherwise, purchasing power will be reduced if the prices of market services are higher in relation to income.

Therefore, it is not theprice increase which necessarily means a decline in purchasing power, especially when income growth is higher than price growth.

Several notions make it possible to estimate the evolution of purchasing power

  • inflation,
  • the consumer price index,
  • pre-committed expenses.

Inflation is the loss of purchasing powert currency which is noticeable by the global and lasting increase in prices.

consumer price index, or the CPI, is what helps you estimate the price variation of different purchases, and other services consumed by households. It is this index that measures inflation and allows the calculation of the increase in purchasing power. It even determines the evolution of the prices of rents and alimony.

Pre-committed expenses are developed by households and these are necessary expenses that are difficult to renegotiate for the most part. They include rent, electricity bills, insurance prices, medical care, etc.

It is important to emphasize that earned income is not the only index for measuring household purchasing power and its evolution. It is essential to take into consideration the social offers and the various taxes paid. We therefore note that the measurement of the increase in household purchasing power turns out to be be complexed.

What measures are taken into account to increase purchasing power?

Following the claims of yellow vests in France, several points are taken into consideration for an increase in purchasing power:

  • abolish the various taxes linked to housing;
  • increase the minimum for old age;
  • impose a personal services tax credit;
  • provide aid for ecological transition such as an energy voucher, energy saving certificates, an ecological transition bonus, a conversion bonus, etc.

In addition, the law introduced three measures to be taken into account for increase purchasing power :

  • a special purchasing power bonus given by companies that are not affected by social security contributions;
  • the exemption from contributions on the salary is made on overtime;
  • the rate of general social contribution (CSG) on replacement wages is 6,6% for some retirees.