Almost all French people notice a price increase in their consumption. This is one of the lessons of the last report Savings and investments from the BPCE Observatory, published this summer. Insee itself noted in July an increase in inflation of 6.1% over one year.
This phenomenon surely forces the most modest to give up putting money aside, as the BPCE study suggests, but the better off would rather tend to increase their savings effort. At least, “Rising prices have become one of the main reasons for saving and the aspiration to save money remains at its highest […]but at the same time, the French have never been so pessimistic about their ability to save”note the authors.
“Anticipate[r] an increase in the cost of living” has thus become the second reason cited by respondents (33%) for saving, behind “We don’t know what can happen tomorrow” (67%). At the same time, the Banque de France notes that the French savings rate is tending to decrease: it would stand at around 17% in the first quarter of 2022, whereas it was more than 19% in 2021. However the “balance of opinion […] on the opportunity to save remains high”noted INSEE in a May economic update.
In other words, although the French always want to put money aside, they do so less, certainly because they cannot so easily. Also because the savings rate during the successive confinements had reached peaks from which we were only just beginning to come down… until inflation turned everything upside down. BPCE predicts that “the household savings rate is expected to decline more slowly than expected”.
The Pigou effect to achieve your goals
These elements confirm what economists call the “Pigou effect”, named after their colleague Arthur Victoria Cecil Pigou (1877-1959), or “negative real cash flow effect”. From this principle, first stipulated to develop a theory on unemployment and wages, we have above all retained that a variation in the evolution of consumer prices has consequences on the savings rate.
This aspect in an inflationary situation is explained by the economist Jean-Marc Daniel (A short iconoclastic history of economic ideas2016): “We say that there is Pigou effect if inflation increases the savings rate. Savings are a way of projecting purchasing power over time. Suppose there is no inflation, and in ten years a household wishes to have 100. To achieve this, all they need to do is save 100. Now suppose there is inflation such that in ten years, the general price level doubles. To have the desired purchasing power, the household in question will have to double the planned savings and bring it to 200.
Only, as observers note, the French do not necessarily have the capacity to double their savings rate even if they wish, they do so moderately while arbitrating with incompressible expenses. Finally, let us recognize Philippe Crevel, director of the Cercle de l’épargne, for the sagacity of having perceived this phenomenon as early as April.