Can We Still Endure a Decline of Our Purchasing Power?

The inflationary shock was violent and traumatic in a world that had forgotten it. Salaries were slow to adjust - resulting in a general decline in purchasing power - and lasting category losses, to which must be added a perennial “resentment”. Inflation has now been beaten, and purchasing power is set to grow very moderately. This quasi-stagnation is likely to be reflected in consumer spending across Europe, with the attendant risk of lower investment and higher unemployment. Moreover, if the amount and rate of savings are high, households will not draw on them due to political and economic uncertainty. What's more, reconciling the need for companies to be competitive with the need to preserve household purchasing power means we have to focus on non-price competitiveness. A new inflationary shock could have serious consequences for social cohesion, which has been shaken in an unstable political environment tempted by populism. Sluggish growth in Europe means that restrictive fiscal policies in one country must be offset by expansionary policies in another. We need to assess the consequences of a trade war on inflation.