Retirement, rent, RSA, APL… The perverse effects of inflation-indexed revaluations

From the retirement pension to the unemployment allowance via the Smic, the APL or the RSA, all the mechanisms of revaluation are upset by the sudden surge in inflation over 5%. They fail to protect the purchasing power of households. What’s wrong? What solutions? Elements of response with the economist Pierre Madec, of the French Observatory of the economic conjunctures (OFCE).

Inflation forecasts for the whole of 2022 are constantly revised upwards. The Banque de France’s estimate of 4.4% is already dated, INSEE will deliver its own at the end of June… What is the OFCE’s forecast? And are we approaching a ceiling?

Pierre Madec: Our estimate is 4.9% for 2022. But I would not venture to say that we have reached the high or if prices can rise even faster.

If the presidential majority is elected, the government promises a 4% increase for basic pensions and perhaps for the RSA and other social benefits. 4%, added to the recent increases, it would still be 5.1% and 5.8% with the latest increases. Would that be enough against inflation?

PM: We sought to measure the contribution to the evolution of the purchasing power of pensions and social benefits [dans les projections conomiques 2022 de l’OFCE, NDLR]. What emerges from our forecasts, and even if everything obviously depends on the situation of each household, is that a 4% increase in social benefits would compensate for the losses in purchasing power due to inflation for the beneficiaries. For withdrawals, on the other hand, the compensation would not be total for everyone, in particular because pensioners have a higher standard of living and this revaluation of the basic pension more clearly supports the purchasing power of more modest households.

Retirement, rents, booklet A, APL, CAF … The winners and losers of more than 5% inflation

Is there a better formula than others among the multiple upgrading mechanisms? That of the minimum wage, which provides for an automatic increase during the year as soon as inflation increases by more than 2%, is it a good compromise?

PM: It is obviously a good thing for the purchasing power that the Smic can increase. But the debate remains open. Why don’t we review it every month? Because you need a minimum of stability and it would be tricky to lower it punctually in case of evolution on alternating current…

Until 2015, social benefits were revalued on the basis of an annual inflation forecast…

Does the increase of only 1.8% in social benefits on April 1st when inflation already exceeded 4% illustrate the shortcomings of the method of calculating this annual revaluation?

PM: Until 2015, social benefits were revalued either in January or April on the basis of an annual inflation forecast… with a possible correction at the end of the year on the basis of the final figures. This operation was abandoned because it was deemed too complicated. And therefore replaced by the current calculation based on inflation observed over the past 12 months. This works well as long as the prices progress little. But it doesn’t work anymore when they progress fast, like today. The fact that it is necessary to go through a “purchasing power” bill 3 months after the annual revaluation clearly shows that the current method of calculation is no longer suitable.

In the OFCE’s French economic outlook for 2022, you insist on the perverse effects of the rent reference index (IRL). Why?

Pierre Madec: This index, which serves as a benchmark for the annual rent review, is itself based on the consumer price index (excluding tobacco and rents). According to our forecasts, the IRL will be more than 5% at the end of 2022. If nothing is done, the impact is clear: +5% on rents. The government can act. If inflation is currently more moderate in France than elsewhere in Europe, it is because certain measures have been taken to curb it: fuel rebates, inflation bonus, etc.

A rent is supposed to evolve according to the charges weighing on the owners… and not according to the price of energies

Do you think that the measurement of this IRL should be reviewed?

PM: This is a real question, for the review of rents. The IRL is currently progressing indirectly following the rise in energy prices. However, this increase in energy costs does not weigh on the expenses of the owners. However, a rent is supposed to evolve according to the charges weighing on the owners…

Housing: there will be no rent freeze, other solutions under study

Finally, a last method of calculating revaluation raising questions: unemployment benefits. The decision, certainly taken in the light of inflation, is up to the administrators of Undic…

PM: It is an almost discretionary revaluation. What is the visibility of the beneficiaries on the percentage increase?

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