In France, 56% of respondents cited prices rising faster than income as a reason their financial position weakened in the current economic climate, the highest in the survey. At the other end of the spectrum was the Netherlands and Germany (both 32%) and India (31%), where still almost a third chose the answer. Job loss and helping family were other causes, while some said their position was relatively unchanged or improved.
“Misery index” is high
It illustrates the large extent of the problem of prices rising faster than income but the fact it is a cause of worries is perhaps not surprising. Inflation – as rising prices are technically known – is relatively high, with Eurostat provisional figures showing 2.7% inflation for 2011 for the 17-country Eurozone, above the European Central Bank target of close to 2%. Eurozone employment was 10.4% in December 2011, its highest rate for more than a decade.
Added together, inflation rate plus unemployment rate creates the misery index – and this is historically high in several nations.
Can savers beat inflation?
Over time, inflation can be particularly dangerous for savers. It behaves to money as rust does to metal, an eZonomics video on protecting savings from inflation says. Five tips for beating inflation reinforces the importance of compound interest and suggests considering index-linked investments.
In a blogpost for eZonomics, economist Chris Dillow writes that one way to tackle inflation is simply to save more – a painful and difficult option.
“If our money won't grow by itself, we should add to it ourselves. Historically, this is what we have done; high inflation has very often caused increases in savings ratios.”