Despite the fact that work hardly pays off in the current economic conditions, the French Observatory of Economic Conditions (OFCE) forecasts that the purchasing power in France is expected to rise by 1% this year. This increase, equivalent to 380 euros, is primarily due to the revaluation of pensions and income from assets. However, the income from work, despite a 0.8% increase in real wages, is predicted to decline by 40 euros as a result of a decrease in employment and a drop in the income of self-employed individuals.
The purchasing power is calculated on an average basis per consumption unit (CU), a unit of measurement that takes into account the composition of households. The increase in income from assets such as real estate and interest on savings, is expected to contribute 190 euros to the purchasing power.
Additionally, social benefits are expected to support the purchasing power with an increase of 250 euros. This is due to indexations at the beginning of the year, including a 5.3% increase for pensions, which, according to the OFCE, could surpass the inflation expected for 2024. Despite this, deductions are likely to affect the purchasing power by 20 euros. By the end of 2024, the purchasing power is expected to be 2.6 points higher than it was at the end of 2019.
Covid: social benefits supported purchasing power
The OFCE draws attention to the “very different dynamics” between sources of income over recent years, which have been shaped by “two specific shocks”: the Covid pandemic and the energy and inflation crisis. During the Covid period (2019-2021), the purchasing power per CU rose by 350 euros per year, primarily due to the social benefits paid out during the pandemic (280 euros). However, it increased at a slower rate (10 euros per year) between 2021 and 2023, a period marked by inflation, but was bolstered by a significant increase in wealth income (390 euros), particularly as a result of the rise in interest rates.
The OFCE notes that these “disparities” have led to “heterogeneous situations” among households. For instance, the consumption basket grew by less than 10.7% for the 10% of households least affected, but by more than 13.9% for the 10% of households most exposed to the shock. The latter group is more prevalent in rural areas, among low-income households, and among retirees.
The wealthiest favored between 2021 and 2023
Between 2021 and 2023, the households belonging to the lowest 10% (those in the 1st decile) saw a slight rise in their purchasing power (0.3% per year). However, given that their savings rate is negative, the OFCE notes that this can be interpreted as “less deterioration in their financial situation”.
Meanwhile, households in deciles 2 to 7, which comprise 60% of households, experienced decreases in their purchasing power ranging from -0.3% to -0.8%. The purchasing power of households in decile 8 remained stable. However, the purchasing power of households in decile 9 rose by 0.4%, while those in the wealthiest 10% saw an increase of 1.2%.
