Nowadays, purchasing power is part of the daily life of many French people. This is'a statistical tool which is developed and used by the National Institute of Statistics and Economics (INSEE). However, everyday emotions and numbers are often out of sync. What then corresponds to the concept of purchasing power exactly ? What should we know about the decline in current purchasing power? We will see all these points together, in the following article! Focus!
What is purchasing power in concrete terms?
According to INSEE's definition of purchasing power, this is a power that is represented by the quantity of goods and services that can be purchased with income. Its development is directly linked to the evolution of prices and incomes, whether via:
- job ;
- capital ;
- family benefits;
- social Security benefits.
As you will have understood, purchasing power is, therefore, the quantity of goods and services to which your assets allow you to access. Purchasing power depends, in this case, on the level of income as well as the prices of products essential to everyday life.
A change in purchasing power thus represents the difference between a change in household income and a change in prices. Purchasing power increases if the rise in prices remains below the income threshold. Otherwise, otherwise, it decreases.
On the other hand, if revenue growth is stronger than that of prices, in this case, higher prices do not necessarily mean a loss of purchasing power.
What are the consequences of the decline in purchasing power?
Inflation has slowed considerably since April 2004, but a feeling of rising prices returned in September of last year. Several studies show that inflation has had a significant negative impact on the amount of household final consumption expenditure (the loss is approximately estimated at 0,7 percentage points), so that the perceived inflation curve and the curve calculated inflation diverge.
Purchasing power per household has also remained stable for several years. Wage income rose only modestly, especially in the private sector. A slight decline in purchasing power some time ago, however, encouraged a feeling of rising prices. New consumption behaviors are taking place because of the rise in inflation expectations. Consumers stick to the basics and ban anything superfluous from their lists.
It's a bit the same principle as for the banking sector with savings systems. If the interest on the savings account is lower than the inflation rate, the purchasing power of the capital saved is automatically lost! You will understand, the consumer is not in control of his purchasing power, it only suffers the collateral damage caused by the law of market supply and demand, but also by the worrying stability of wages.
What to remember about the decline in purchasing power
Lower prices in the consumer goods sector lead to lower sales volumes. During 2004, raw materials (agricultural and food products) decreased by 1,4% in volume. It should be noted that this decline has never been observed before.
In a period of weak growth in purchasing power, household decisions are tricky. Food representing an increasingly small part of the household budget (only 14,4% in 2004), price reductions in supermarkets are invisible to consumers. There is a set of standards that are developed internationally that measure changes in household purchasing power from one period to another. The change in purchasing power obtained is the difference between:
- The evolution of GDI (gross disposable income);
- The evolution of the “deflator”.
Price increases have more impact on the purchasing power of three quarters of French people. In particular the price of food and energy, two items of expenditure for which households mainly expect to government support.
