Inflation hurting consumers

Consumers in Greece and worldwide feel even more financially stressed, despite the de-escalation of inflation, which, in fact, is expected to continue, pointing to a limited increase in consumption according to the first indications for 2024.

The reason for this phenomenon is, on the one hand, the mismatch between price hikes and the growth of disposable income over the past three years, and, on the other, the accumulated fatigue from continued inflation, which started in the second half of 2021 and continues.

Consumers’ assessments of price developments and their current economic situation reflect the difference in the rates of change between nominal disposable income and inflation, and therefore the impact of the latter on real household disposable income.

As Alpha Bank points out in its weekly report on the Greek economy, gross disposable income recorded a decline in 2020 due to the pandemic and the measures to restrict economic activity that were put in place, which exceeded the corresponding decrease in the Harmonized Index of Consumer Prices (-5.1% versus -1.3%). Then, in 2021, disposable income recovered at a significantly higher rate than the HICP (7.6% vs 0.6%), which is largely attributed to base effects, as economic activity gradually began to normalize.

However, despite the fact that in 2022 disposable income recorded an equally significant increase (7.6%), inflation was at a high level of 9.3%, eroding the real disposable income of households. In the first nine months of 2023 the losses in real terms were partially offset, as the rate of increase in nominal disposable income was significantly higher than the rate of growth of the HICP (7.4% against 4.4%).

The continued pessimism of households is also reflected in the consumer confidence index compiled by the Institute for Economic and Industrial Research (IOBE), which worsened in January 2024 and stood at -46.3, the worst level since February 2023. A total of 59% of households expect their financial situation to worsen in the next 12 months, 60% predict a rise in prices, while 63% consider that their financial situation is difficult to predict, indicating the particularly high degree of uncertainty.