Employees’ purchasing power continues to grow, regardless of inflation

Inflation hitting hardest on the unemployed

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In spite of the accelerating rate of inflation, ordinary wage and salary earners in Finland do not appear to have reason for concern.
     
If a report by the Labour Institute for Economic Research (PT) is to be believed, the monthly tax- and cost-of-living-adjusted average income for Finnish employees will grow by 3.7 % in the current year and by 3.3 % next year.
      PT calculates that particularly the purchasing power of well-educated couples who work will increase in the current year. This applies to families with children and childless couples alike.
      In 2009, the real income after taxes of families with children will decrease compared with those with no children, when the daycare rates go up.
     
According to the calculations, only the purchasing power of the unemployed Finns will decline this year, and will remain at the zero level next year as well. The real income of OAPs will also be relatively much lower than that of other groups.
      The situation of single parents will improve distinctly in 2009, when their daycare rates will go down. In terms of percentages, the financial situation of single parents and OAPs is to improve most next year.
      The purchasing power of senior citizens will grow next year thanks to the index increments based on the high inflation rate.
     
PT’s assumptions are based on an assessment calculated for ten typical families, including a white-collar family with two children, a childless couple of experts, a working single parent, a jobless person, and a senior citizen.
      In its calculations, PT has taken into consideration various factors, including income, transfers of income including child allowances, home loan servicing costs, rents and daycare rates, as well as to the upcoming tax reliefs.
      In the model calculations, PT has assumed that the income development of all wage earners is equal. In reality, the salary increases given to various employee groups have not been homogeneous.
     
In terms of euros, the PT calculations indicate that the winners are the highest income groups. The purchasing power of a family with monthly earnings of more than EUR 12,000 will this year grow by EUR 233 a month and in 2009 by EUR 278 a month compared with the previous year.
      The real income of a single parent will this year grow by EUR 35 a month, and in 2009 by EUR 46 a month.
      The purchasing power of a jobless person will decrease by EUR 13 this year, but in 2009 it will stabilise.
      According to PT, the impact of inflation is also the hardest on the unemployed. In fact, when the inflation rate for a childless white-collar family is 3.6 % in the current year, the corresponding figure for a jobless person is 5.1 %.
     
”The income of unemployed people is so low that the necessary staple commodities eat up the majority of their unemployment benefit. According to our findings, jobless people’s consumption of cigarettes and alcohol beverages is high, while the prices of both of these have gone up. At the same time, rents have also increased”, lists PT’s Chief of forecasting Eero Lehto.
      Moreover, the prices for food have grown more than those for personal services and luxury goods.
      Everybody has to eat, while only the well-to-do people use personal services.
      PT forecasts that the Finnish rate of inflation is likely to slow down, and will next year drop to 3 % from the current 4 %, which will even out the inflationary differences between the various income groups.
     
PT predicts further that next year will also see a slight increase in the Finnish unemployment rate.
      According to the institute, this year’s unemployment rate will be 6.3 %, while in 2009 the rate will rise to 6.5 %.


Previously in HS International Edition:
  Taxpayers´ Association predicts buying power of average income to grow 2.4 percent (4.1.2006)
  Purchasing power of highly-educated Finns weakest in all EU countries (16.4.2004)

Links:
  Labour Institute for Economic Research

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