Vous n'êtes pas encore inscrit au service newsletter ?

S'inscrire

Login

Forgot password? Reset it!

×

AB 2000 studies

Alain Boublil Blog

 

Inflation : The new tax

At the end of February, inflation, year-on-year in France reached 3.6 %. This month alone, consumption prices had increased by 0.7% after 0.3% in January. If we use the harmonized calculation mode defined by the European rules, inflation has been during that period 4.1%, an unknown level for thirty years. The main cause has been the increase of the energy prices (+21% on one year) resulting from geopolitical tensions because the costs production increases had not yet been completely passed to the other categories of goods and services. In the United States, inflation year on year has reached 7,5 %, i.e. more than in France and in the euro zone (+5.8%), according to the last published figures.

Traditionally, inflation in one country is dreaded because it hurts enterprises competitiveness. But as the main competitors are confronted to the same phenomenon, the consequences, until now, on the French foreign trade, already heavily in deficit (85 billions euros in 2021), are limited. Everything will depend from the production costs trend. Regarding industrial goods, on the last twelve months, the increase, according to INSEE, was 22%. This figure is moved by the basis effect. A year ago the production had almost stopped but the acceleration observed in January (+4.6% on one month) is worrying. If regarding services, costs seem to be stable, the situation is quite different in agriculture with, on one year, a 16% increase of the production costs resulting from the evolution of fertilizers and fuels prices.  

It has longly been believed that this inflationnist wave was a transitory one. The seriousness of the international situation with its consequences on energy prices and on supply chains questions this analysis. Yet the measures usually used to cope with that situation will be difficult to implement in this context. The reduction of public expenses in order to weighting on activity and so on prices is impossible to achieve due to the international commitments taken to help Ukranya and to the decisions taken to strengthen the defense tools in Europe. Regarding taxes increases in such an environment, no government is ready to take this risk as soon as the current conflict is still there.

The other way to fight against inflation consists in slowing the activity through interest rates increases and a reduction of the Public Bonds Buying Programs on the markets. The European Central Bank has gone very far to support the « whater it costs » of the State Members. The process of the reduction of the net purchases of bonds is going but the institution has been very cautious about the rates increase issue, which are currently negative. In the U.S., a first rate increase was forecast, if not announced, for March.The international crisis could encourage the Federal Reserve to delay this rate increase, even if numerous voices expressed  that if we were waiting, that will be even more painful in the future when the decision is taken.  

But financial markets, and not only the Russian one which is heavily hurt by the sanctions decided by Western countries, are very fragile. Banks and enterprises having industrial and trade relationship with Moscow, will be affected by the consequences of the freezing of the transactions and even of their local activities. That occurs when the restarting of the economies, which is quite real, had not yet allowed to completely writing off the consequences of the sanitary crisis. It is why there is a low probability that a restrictive monetary policy will be adopted to fight against inflation, as that was the case during the past because the phenomenon, for the countries which are highly indebted, presents, even if they defend themselves of it, many advantages.

The real interest rates have fallen because thanks to the central banks action, for all the maturities, the nominal ones have not much moved. In 2019, France was issuing 10 years bonds with an -0.35% average rate. That year, inflation was not overpassing 1%. In 2022, the 10 years bond has rebounded around 0.70% but inflation is now near 4% and the impact of  the international crisis  on energy prices has not yet been fully registered. So the real charge of the debt for the coming years, except for the low share of it (10%) which is indexed, will reduce itself.

The second advantage is much more significant. The State is going to be the great beneficiary of the return of inflation, thanks to the receipts coming from taxes like VAT. Even if the State put a ceiling in favor of household on the repercussion of the energy prices increases, as it is the case with electricity and natural gas, the high level of taxes on these two products and on gasoline will have as a result important additional receipts. It will be the same for the other categories of goods and services, the consumption stagnation since the beginning of the year being more than compensated by the prices rises whose VAT receipts will take profit.

The income tax calculus mode, which is now based on the current year wages and real estate and financial revenues, will also generate an important receipts supplement because the tax scale included in the finance bill had been fixed in July 2021 and the level of the taxes brakets had been increased by only 1%. As 2022 inflation will be at least 4%, concerned household will see their revenues more taxed.

Social charges will follow the wages evolution which will increase, even if these ones will not always be enough to protect their purchasing power. That will generate much larger receipts than the expenses regarding pensions and family allocations which, them, will have a small upgrading. So we will see, without structural reforms or contributions increases having been decided, a reduction of the deficits.

At last, the most impotant consequence of inflation is its consequences on the household financial assets. These ones, at the end of 2020, own on their different accounts and bank deposits 1 800 billion euros and in their life insurance contracts in euro an equivalent amount, i.e. as a total 3 600 billion euros. In 2021, they have perceived an average return around 1.5%. Inflation having been near 4%, they have lost more than 60 billion euros. Situation would be worse in 2022. The symbolic increase of the Livret A rate which has been risen to 1% on 2022 February 1st, will be far from compensating the damages caused by the inflation acceleration. With a negative real rate of 3%, the loss of purchasing power on the accumulated saving could overpass 80 billion euro that year. But these sums are not lost for everybody because they allow public authorities to directly borrowing from the institutions which manage these accounts with rates much lower than market ones.

The inflation which hurts the developped economies, and especially France, is not a bad deal for everybody. It constitutes a kind of painless tax which allows the State and the whole public sector to taking profit of additional receipts and to reducing the real cost of their indebtedness.

Comments

No comments yet.

Vous devez vous inscrire pour poster un commentaire : se connecter