Inflation Falls Below 2%: What Is Shrinking Household Budgets If Not Wages or Prices

How can an official, reassuring figure leave such a bitter taste in people’s wallets? That is the question running through many French households today, as inflation curves point downward without monthly budgets easing accordingly. This back-to-school period, economic institutes announce a clear retreat of prices, with harmonized inflation approaching the European Central Bank’s famous 2% target. On paper, it’s excellent news. In practice, a broad majority of French people still feel their purchasing power is eroding. This paradox, far from being merely anecdotal, reveals economic mechanisms that are subtler than a simple equation between wages and prices at the checkout.

Inflation is falling, the wallet doesn’t feel it

The statistics are nonetheless unambiguous. Harmonized inflation recently stood at around 1.4%, a level not seen in a long time and which theoretically gives households more room in their budgets. This lull follows several tumultuous years in which energy, food, and commodity prices had surged, seriously eroding households’ purchasing power. One could therefore expect broad relief, almost tangible in supermarket aisles or on electricity bills.

Yet the reality experienced by the French tells a very different story. Nearly six out of ten people believe their purchasing power has declined in recent months, despite this real slowdown in inflation. This gap, which economists call the perception gap, illustrates how macroeconomic indicators can diverge from daily experience. It isn’t simply a psychological bias: behind this persistent impression of shrinking budgets lie real mechanisms, often invisible in national averages.

The real culprit isn’t price, it’s the rate

If inflation slows, another factor continues quietly to weigh on household finances: the stagnation of real wages. The average wage per person should remain nearly stable, with virtually no change after a small rise the previous year. This wage stagnation cannot offset the impact of job losses observed in certain sectors, which mechanically weighs on the total wage bill and, by extension, on purchasing power per unit of consumption, which could fall by 0.7%.

This phenomenon is largely explained by a structural mismatch between wage negotiations and the inflation actually experienced. General increases obtained during mandatory annual negotiations often hover around 2 to 3%, whereas cumulative inflation over recent periods could have reached 5%. That delta is never fully caught up: each year when wages rise slower than prices, some purchasing power evaporates, with no possible rebound. It’s a bit like running on a treadmill that speeds up faster than your legs: you advance, yet you still go backward.

These fixed charges that quietly nibble the budget

Beyond the overall figures, another reality deserves emphasis: the salary squeeze that particularly affects those earning just above the minimum wage. Unlike the minimum wage itself, automatically indexed to inflation, higher salaries do not enjoy any guaranteed catch-up mechanism. The branch minima, intended to serve as a safety net, do not always follow this dynamic, creating a downward compression effect that primarily hits middle-income workers.

This situation gives rise to a silent sense of injustice: an employee paid only slightly above the minimum wage can see their relative standing deteriorate year after year, even if their pay slip does not explicitly reflect it. Fixed charges, meanwhile, show no pause. Housing, insurance, various subscriptions continue their growth, sometimes faster than overall inflation, absorbing a growing share of disposable income before everyday expenses come into play.

Why the sense of poverty resists good statistics

By the end of last year, already, the purchasing power of households’ gross disposable income had fallen by 0.3% in the third quarter, even as economic growth showed a positive uptick. This kind of statistical contradiction, difficult to explain without technical detail, fuels growing distrust among the French toward official economic announcements. How can one believe things are getting better when their own bank statement tells a different story?

It should also be noted that the average inflation forecast for the current year is expected to rise slightly, with projections around 1.8%, after a temporary peak at 1.7% in spring. This variability, invisible in annual averages, further complicates daily life for households, who experience short-term price spikes far more intensely than gradual declines. It’s a bit like remembering the sting of a blow more than the relief of a lull.

Nonetheless, an improvement is expected for the following year, with purchasing power stabilizing thanks to a more pronounced rise in real wages, around 0.7%. But until this brighter spell is realized, the sense of budget shrinkage is likely to persist, fed by this persistent gap between macroeconomic figures and personal experience.

In the end, it isn’t the price of coffee nor the price of gasoline that alone explains this stubborn feeling of deprivation. It’s rather the invisible accumulation of years in which wages never fully caught up with prices, combined with fixed charges that rise relentlessly. So, should we keep trusting only national averages to judge the economy’s health for households, or should we finally look more closely at these silent mechanisms that, year after year, quietly redraw the budgets of the French?