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Inflation: the price index does not reflect the real cost of living

Editor’s Note: This article comes to us from CGT in France. This article was originally published in October and was the second of several articles published by the union on the effects of inflation on the working class of France.

When INSEE publishes its Consumer Price Index (CPI) to measure inflation, many things do not appear or are insufficiently taken into account: housing, tobacco, double charges for single-parent families, credits, insurance, etc. The CGT wants to build a cost-of-living index that reflects the reality of households’ financial burdens, depending on their wealth.

The figures on purchasing power only estimate price changes, regardless of consumption patterns, which vary according to household wealth.

Last September, the consumer price index (CPI), which measures inflation, fell by 0.6% compared with August, but over a year it rose by 5.6%.

This index, which estimates the average change in the prices of products consumed by French households, is calculated monthly by the National Institute of Statistics and Economic Studies (Insee). Published in the Official Gazette, it is law-based.

The problem, and INSEE recognises this, is that this price index is not at all an indicator of the cost of living.

“It does not reflect the burdens borne by households to accommodate themselves – with an increasing proportion of people living alone – to pay insurance, in short, all the expenses constrained or pre-engaged. But these spending weighs differently on the household budget: much more for the lowest incomes than for the wealthiest, and the CPI does not measure it,” insists Mathieu Coq, head of the economic pole at the CGT.

“Even tobacco has come out of the INSEE panel of products, as the price of cigarettes explodes and statistically it is the poorest who smoke the most,” he adds.

According to a note from 2021 of France Strategy, an organization attached to Matignon, 41% of the expenditure of the poorest households go into rent, internet subscriptions, transport, school canteen, etc.
Against 28% for wealthier households.

Not all equal in the face of inflation

Inflation does not have the same impact on everyone: when it rises, the loss of purchasing power is greater at the bottom of the wage scale.

The CGT believes that at least one index point should be added to bring the real cost of living. But rather than this correction, the Confederation’s economic hub is considering creating a cost-of-living index, with different indicators according to social categories. Discussions are being held with the Institute for Economic and Social Research to build this cost-of-living index, closer to the reality experienced by households.

Having an income that changes with the consumer price index does not guarantee that one can maintain one’s standard of living.
It all depends on what prices are going up or not (the fall in the price of five-star hotels has no interest in the world of work, unlike the evolution of the prices of essential goods).

The most important thing is to have a decent income, which immediately involves an SMIC of EUR 2000.

Meanwhile, the trade union organization defends wage indexation on inflation, with the shift in wages from now on.

The moving ladder? It is a mechanism for automatically raising wages and pensions on inflation.

With immediate impact on all branches. The defianced in 1983 by the socialist government of Pierre Mauroy, the de-indexing of salaries to prices is unfortunately confirmed.
As a result, over the past 40 years, wage purchasing power has risen only marginally.

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