A new survey by Panorabanques, a comparison website for banks in France, shows that nearly half of French people have an overdraft in their bank accounts at least once a year, with an average overdraft of 232 euros, a slight improvement from 246 euros last year. The latest data released by the French Institute of Economics (Insee) at the end of September showed that the French inflation rate reached 2.1% in September, which had a significant impact on the purchasing power of low- and middle-income households.
Half of the French do "losers" at least once a year
According to a recent survey by Panorabanques, a comparison website for french banks, nearly half (46%) of French people have an overdraft at least once a year, of which 19% are in a monthly overdraft, 13% are quarterly and 15% are annual. 36% of French people consider their purchasing power to be weak and bank account overdrafts are commonplace for them.
The economic situation of the different types of households also varies considerably. Single-parent families, families with children and low-income workers earning less than €1,500 a month are most severely overdrafted, while single and cadre families (with a monthly income of more than €2,500) are much more economically comfortable.
The top three reasons for overdrafts were lack of money (36 per cent), unplanned expenditures (34 per cent) and account management negligence (23 per cent). In the overdraft group, half of the population exceeds the overdraft limit at least once a year, with an average overdraft of 285 euros, a slight decrease from 295 euros in 2020. The survey also showed that 15% of French people do not have any savings as a buffer and are in a state of severe overdraft for a long time.
Laure Prenat, president of Panorabanques, pointed out that overdrafts are very expensive for users. Overdrafts within the limits allowed by banks are subject to a fee of approximately €10 a year; if the overdraft limit is exceeded, the fees range from 7% (e.g. Boursorama Banque, Fortuneo and BforBank) to 15% (e.g. BNP Paribas and La Banque Postale).
For families with severe overdrafts, the various bank-related fees are undoubtedly worse. Since 2014, banks have charged a commissions d'intervention of 8 euros for an overdraft, capped at 80 euros a month, plus an overdraft fee ranging from 16% to 21%. In addition, some banks charge an average of 10 euros for the postage of "overdraft notification letters" (33 banks are free). "The most important thing to pay attention to is the operating expenses, and you may be in a bigger crisis. Currently, only online banks do not charge operating fees. Laure Prenat reminded.
How to avoid falling into an overdraft crisis? Laure Prenat recommends "keeping an eye on bank balances", downloading and installing the bank APP, and turning on the "Balance Cordon" function, once the cordon is reached, users can receive APP notifications. But more importantly, talk to banks about raising the overdraft limit. Finally, if you know that the risk of overdraft will be inevitable in the coming months, you can apply for a consumer loan in advance and plan ahead.
Inflation in the post-pandemic era affects purchasing power
Although the overdraft of French bank accounts has improved slightly in 2021, at a time when the French economy has just entered the recovery stage of the post-epidemic era, oil prices have continued to reach new highs, gas bills have risen by 12.6%, and electricity bills will also increase significantly, which will have a considerable impact on the purchasing power of the French people, especially poor families.
According to the Franceinfo news website, the French Institute of Economics (Insee) released a report at the end of September showing that prices in France rose by 2.1% in September from the same period last year, and inflation reached the highest level since the autumn of 2018, of which energy prices rose the most, as high as 14.4%.
Why do prices continue to rise?
In the spring of 2020, inflation in France was extremely low, at just 0.5 percent. Since December 2020, vaccination has eased the COVID-19 pandemic, economic activity has gradually recovered, and prices in France have risen with it. Economist Paula Monperrus-Veroni, head of the euro area at Crédit Agricole, explained that the COVID-19 pandemic has led to an imbalance between supply and demand in the market, which has gradually recovered in recent months, with demand for consumption and services soaring, and prices rising due to short supply. Anne-Sophie Alsif, chief economist at Fong's accounting firm, points out that rising energy prices are often the cause of inflation. France's current gas consumption is much higher than in 2020, basically recovering to pre-epidemic levels in 2019, but at the same time, gas production has decreased significantly, and gas prices are inevitable.
What is the impact on daily life?
Rising energy and food prices will inevitably have a negative impact on the purchasing power of ordinary people. Anne-Laure Delatte, an economist at the French National Centre for Scientific Research (CNRS), warns that special attention should be paid to low-income households, as food and energy spending as a high share of their total consumption expenditure.
To ease the pressure on low-income households, the French government announced that it will increase the amount of energy checks by 100 euros, benefiting 5.8 million families. In addition, the government is also considering issuing food checks in 2022.
How long will the price increase continue?
Experts pointed out that due to the strong recovery in economic activity, French prices will continue to rise in the coming months. Inflation is expected to reach 4% in the fourth quarter of this year and remain at 3% in the first quarter of 2022. The shortage of supply will ease in 2022, and there may be an oversupply in 2023.
France is the only country affected?
Data released by Eurostat on October 1 showed prices in the euro area rose 3.4 percent year-on-year in September, the highest level in 13 years. France is not the only country affected, with inflation in Spain, Germany and the Uk at around 4%. In the United States, inflation has accelerated since April and reached 5.4 percent in July.
When prices rise, can wages rise with them?
According to French labor law, only the minimum wage (SMIC) is calculated on the basis of an inflation index. As a result, the French minimum wage has been increased by 34.2 euros (before tax) since October 1. In the hotel and catering industry and the agri-food processing industry, unions and employers reach an agreement to raise salaries by 1.5% to 2%.
But experts point out that collective wage increases across society "are not the solution." Economist Stéphanie Villers explained that if wages rise overall, companies will inevitably raise prices in order to protect profits, which will evolve into a vicious circle. In fact, until the 1980s, French wages were indeed calculated according to the inflation index. President Mitterrand's reason for abolishing this practice was precisely to resist inflation that was almost uncontrollable at the time.
Inflation must be bad for the economy?
Rising energy and food prices are bound to hit underprivileged households, and the social impact cannot be underestimated: the "yellow vest" movement that swept across France in late 2018 was launched because of rising oil prices.
Clearly, runaway inflation can lead to a serious economic crisis. South American Argentina has seen inflation of 42.6 percent in the last 12 months, 36 percent in 2020 and 54 percent in 2019. This persistently severe inflation has almost completely destroyed the purchasing power of the local population, and the latest survey by the French newspaper Le Monde shows that 42% of Argentines live below the poverty line.
But it's important to note that too low inflation is also a bad thing: deflation from chronic price downturns can trigger a recession. In fact, the ideal state would be to maintain inflation between 0.5% and 2%. The European Central Bank (BCE) has set an inflation target of 2% to balance deflation in some countries. In addition, proper inflation is also very beneficial to the national treasury: prices rise, and with it the national tax revenue.
If inflation is too strong, how to regulate?
The current Inflation rate in France is 2.1%, which fully meets the requirements of the European Central Bank. However, if prices rise too sharply, the central bank may be able to curb inflation by raising interest rates. Experts point out that raising interest rates will hit the economic activity that has just restarted. "In the case of loans, for example, higher interest rates will lead to more repayments, fewer households and businesses that can afford to repay loans, and slower consumption and investment." Paola Monperrus-Veroni gave an example. Anne-Laure Delatte, an economist at France's National Centre for Scientific Research (CNRS), also warned that if the ECB raises interest rates, it will seriously affect the EU's economic revitalization plan, which relies on public finances.
(Editor: Summer Rain)