(Finance) – The “Treasure” savings accumulated by households during the pandemic, especially in liquid form, with a current incidence of deposits equal to 110% of disposable income, represents a fundamental “psychological guarantee” which, assuming a falling inflation during the 2023, may favor the consumption stability (the propensity to consume will remain below 1) despite the loss of purchasing power caused by inflation never so high since the mid-1980s. A beneficial effect that, however, is unlikely to involve low-income employees, as the additional savings have been accumulated mainly by middle / high income families.
This is what emerges from the report The accumulated liquidity as a reserve to face inflation ?, carried out as part of the Monitor Phase 3 research project, the result of the collaboration between Legacoop and Prometeia Studies Area.
The study highlights how, during the pandemic, the propensity to save has increased significantly (in parallel with a reduction in consumption), with an almost doubling of flows in 2020 compared to the averages of the years preceding the pandemic (from 8, 0% in 2019, equal to 93 billion, it goes to 15.6%, equal to 175 billion) and a level that is still very high in 2021 (12.4%, equal to 153 billion). A behavior determined not only by the impossibility of using many goods and services due to the closures, but also because families, frightened by the exceptionality of the situation, have set aside more for precautionary purposes, also favored by a very broad political support budget in support of households, businesses and employment. A trend that continued also in the first months of 2022. The context of uncertainty and the negative trends of the financial markets have in fact favored a further accumulation of liquidity for precautionary purposes (between January and May the flow of deposits stood at 20 billion) , despite the inevitable erosion of the value of liquid wealth with the increase in inflation and the push to consume to return to the lifestyles preceding the pandemic.
The study points out that behind the aggregate data, however, there are very consistent differences between types of families, especially with reference to the income class. Families belonging to the first deciles usually fail to save and, in any case, allocate a greater share of income to “forced” expenses (housing, transport, food), where there is little space for tourism and entertainment expenses, the more limited ones during the two years of the pandemic.
And they are right these families suffer the heaviest effects of inflation whose run, which began in 2021, continued until it reached 8.0% in June of this year (and then decreased by one decimal, to 7.9%, in July) due for more than half to energy component, but to a large extent now also to food and the more core component, for example with a rapid increase in the prices of services linked to tourism. And while many companies manage to offload the increase in costs downstream, fixed-income households are experiencing a very large curtailment of their real income, considering that an inflation of 8% for a full year would be equivalent to the loss of power. purchase of a monthly salary.
“The social risks of this convulsive phase are very high” -declares Mauro Lusetti, president of Legacoop- “Already during the pandemic from our observatory we denounced how the impact was asymmetrical not only on businesses, but also on families: on the one hand there were those who forcibly accumulated unexpected savings, on the other hand those who were further impoverished. Now everyone, including the institutions, is counting on the first aspect to go through this difficult phase. But it is necessary to remember above all the second that hides layers of the population that, already hit hardest by the health emergency, it is now also serving a new economic emergency.
After the price reviews of the past months, now the increase in costs it is pouring further into consumption. In Italian conditions, exceptional social protection policies are needed, because, even if we take the forecasts of a gradual return of inflation for good, we already know that this autumn will be very hard. Adding to this picture of anxiety and fragility also the instability of an electoral phase was a masterpiece of irresponsibility of the Italian politics that we certainly would have liked to do without ”.
The study highlights how in this one shock phase of unexpected intensity, the occurrence of phenomena of “monetary illusion” cannot be excluded, especially for those who are not crushed by the budget constraint, helping to explain a higher-than-expected holding of household spending. But of course such an illusion it cannot last long and the time factor – as long as inflation remains so high – is crucial. Unfortunately, the current geopolitical prospects do not authorize today to believe possible a quick return of energy prices and, with them, of overall inflation. For a while it will be necessary to deal with prices that are rising at levels not experienced since the mid-1980s.
How will families react? The study foresees, in the coming quarters, a recovery in the propensity to consume, in the attempt of families to maintain their standard of living unchanged, despite the fall not only in real disposable income, but also in the market value of their wealth. The “treasure” of savings, even in liquid form, accumulated during the pandemic will be fundamental: not because it will be spent (the propensity to consume will remain less than 1), but because it will represent a kind of “Psychological guarantee” to favor the resilience of consumption despite the loss of purchasing power, on the assumption that in the course of 2023
inflation falls again.
The study hypothesizes, in fact, that a price-wage run-up will not start, and this implies that the “supply” shock that is being experienced in Italy (and throughout Europe), which implies the transfer of income abroad via bill energy, will be heavily paid for by employees, particularly those with low income, on whom this inflation concentrated on energy and food is having the greatest effects. It is therefore important that fiscal measures aimed at tackling such inflation, in a context of limited resources, are targeted at poorer sections of the population and not distributed in rain.