Those with lower incomes suffer most from inflation

Those with lower incomes suffer most from inflation
Credit: Canva

Inflation in Belgium reached nearly 9% last month, the highest level in 40 years. Though the rise in prices is felt by all echelons of society, the diminished purchasing power hit those with low and fixed incomes particularly hard.

National inflation levels are calculated by Belgium's statistics office Statbel, which compares the prices of products and services to the same time period a year before. In May, inflation was 8.97%, meaning life had become nearly 9% more expensive than in May 2021.

The central bank aims for an inflation rate of around 2%; the last time inflation was this high was in August 1982.

Different categories

Compared to the rest of the Eurozone, inflation in Belgium sits between the Netherlands and Luxembourg. Estonia saw the highest inflation at 20.1%. Malta and France, on the other hand, managed to keep inflation at just 5.8%.

Food, clothing, restaurants and transport are still relatively affordable in Belgium. But for houses, rent, energy and water, inflation is extremely high at up to 33.5%.

"Perceived inflation" also plays a role in people’s perception of prices. Price increases are much more noticeable than price decreases, and while inflation rates compare prices to the year before, our memory goes back further than that.

High inflation affects the purchasing power of individuals but also reduces economic activity and thus harms the economy as a whole. In addition, high inflation can lead to increasing inequality, De Morgen writes.

Where inflation hits hardest

Although the overall inflation rate is 9%, the actual price increases vary between individuals and households. In fact, there are large differences, as those with low or fixed incomes are usually affected the most because they have less disposable household income to shield themselves from it.

For instance, for a single-parent family with an income of €2,000 that lives in a poorly-insulated rented house and owns a car, inflation amounts to 25.5%. On the other hand, for a couple where each earns €2,000, has a company car, owns their house which is fitted with solar panels, inflation will be around 4.6%.

Related News

Low- and middle-income households in Belgium tend to be more dependent on their monthly wage and transfer payments than wealthier households. This means that price inflation often outstrips growth in wages.

Income from investment and self-employment, on the other hand, is more likely to keep pace with inflation. Furthermore, wealthier families often have fewer monthly expenses thanks to long-term investments such as solar panels and home ownership, making them less likely to suffer from inflation than underprivileged families.

This month’s inflation will be published on Wednesday.

Copyright © 2024 The Brussels Times. All Rights Reserved.