Purchasing power: How to reconcile what the French feel and what the stats say?

This is "the" economic theme that comes back in force at each presidential election. This is of course the “purchasing power”, which each candidate promises to preserve, or even increase. According to a poll carried out at the end of September by Elabe for BFMTV, this is also the main concern of the French to make their choice in the future ballot.

It is therefore not surprising that each study on purchasing power is widely discussed and criticized, and that each camp interprets it to its advantage. Latest debate to date: the evaluation carried out on Tuesday by the Institute of Public Policy (IPP). She believes that purchasing power has generally increased during Emmanuel Macron's five-year term, but that it is especially the very rich who have benefited from it. For its part, the executive highlights the assessment from the Treasury Department, which shows, conversely, that it is the purchasing power of the most modest that has increased the most (in percentage) over the period. .

A "simple" definition...

While the two studies reach different conclusions on the main "winners", they do agree on one observation: the increase in purchasing power is real for a large part of the population. However, these conclusions based on statistics differ greatly from the "feeling" of the French. At the end of September, a survey showed that 56% of them believed that their purchasing power had declined since 2017.

How can this apparent paradox be explained? By immersing oneself in the way in which the indicator is “constructed”. "Purchasing power", which corresponds to the quantity of goods and services that can be purchased with a given income, is calculated from gross household disposable income (after taxes and contributions) and the index of price. If incomes increase faster than prices, purchasing power increases. If income rises more slowly, it falls.

…Which can be refined by household

This is where a first limit appears: as INSEE explains, “purchasing power is a macroeconomic measure”. In other words, it is an overall measure, which is not intended to reflect the diversity of situations, which can lead to the feeling of being out of step with “real life”. Fortunately, several methods exist to refine the analysis.

One of them is to divide disposable income by the number of people in the household. These are called consumption units (CU). Thus, a single person counts for 1 CU, then we add 0.5 CU per “adult” (over 14 years old for INSEE) and 0.3 CU per additional child. This approach allows statistics “more representative of the composition of households and ultimately closer to the reality of household consumption”, assures INSEE. Thus, in 2020, the "average" purchasing power increased by 0.4%, while it stagnated (0%) if we take into account the consumption units (see graph below).

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Evolution of purchasing power between 2010 and 2020 by 20 Minutes.

…Or by taking into account other expenses

This taking into account the diversity of households makes it possible to “temper” the increase in purchasing power, but it remains an increase despite everything. So how can we get even closer to the feeling of “decrease” felt by the population? Perhaps by taking into account another indicator: “pre-committed” expenses.

INSEE defines them as expenses that are “difficult to renegotiate in the short term”: rent, loan repayments, water and heating bills, insurance, telephone subscriptions or the children’s canteen. When these expenses are subtracted from disposable income, we obtain “arbitrable income”. It makes it possible to estimate “the budget over which the household really has control, including in the short term”, indicates France Strategy in a note published in August.

However, the share of this "arbitrable income" is tending to decrease, because "pre-committed" expenses have increased sharply over the past twenty years. According to France Strategy, they represented 32% of total household expenditure in 2017, compared to 27% in 2001. And according to household wealth, the disparities are very strong.

Heavier "pre-committed" expenditure among the poorest

Thus, among poor households (less than 1,025 euros in income per month for a single person), the proportion of "pre-committed" expenditure -committed” jumped by 10 points between 2001 and 2017 (from 31 to 41% of total income), mainly due to the increase in rents and charges. Among low-income households (between 1,025 and 1,526 euros in income for a single person), the share of these expenses has increased by 7 points. On the other hand, among wealthy households (more than 2,280 euros per month), the burden has increased by only 3 points.

Share of pre-committed expenditure in total expenditure (2017) per 20 Minutes.

The consequence is therefore that any increase in income is “nibbled away” by these ever-increasing expenses, especially among the most modest. This can contribute to the feeling that purchasing power is not really progressing.

Do not suffer from a "feeling of downgrading"

Two other factors can also affect the "feeling" of purchasing power, in a more subtle way. First, as the chief economist of the Treasury, Agnès Benassy-Quéré, reminds us in a blog post, households have “a particular aversion to [financial] losses. If a public policy combines, as is the case over the 2018-2022 period, measures favorable to disposable income (gradual abolition of housing tax, increase in the activity bonus, etc.) and unfavorable measures ( strengthening of tobacco taxation, reform of housing aid), it is possible that unfavorable measures are more weighted [understand visible], in the minds of households, than favorable measures”. Or, as Emmanuel Macron summed it up in his own way: “In France, we look at the penny we lose, never the one we earn! ".

There is also, according to Didier Blanchet, of INSEE, “a chase between purchasing power and consumption standards”. Society is constantly creating new needs – ever more powerful computers, new telephones every year – which push consumers to equip themselves ever more so as not to suffer “a feeling of downgrading”, as Didier Blanchet assures us. . Even if it means cutting back on the purchasing power dearly acquired.