Page 35 - bne IntelliNews monthly magazine October 2024

bne October 2024 Cover story I 35
Cost-of-living crisis
The rising food prices are already affecting consumer behaviour. In the US, the Dallas Federal Reserve released a study that found the sale of sausages has soared; economists say the reason is because the price of meat has risen so much that punters are trading down to sausages as the cheapest form of meat on the market.
At the same time, the US Restaurant Performance Index (RPI) fell -1.3% in July to 97.7 points, the lowest level since the 2020 lockdowns, as punters stay in more. Since 2021, this metric has fallen by ~8.0%, marking the largest drop since it was launched in 2002. Since 2020, food prices away from home have gained 27.0%, and fast-food prices have jumped by 31.0%, far in excess of the rise in
basic inflation.
In general inflation in the G7 is running much higher than the developing world, although thanks to overheating Russia’s inflation is a persistently higher, at around 9%, but still less than the rising in nominal wages of 12%, resulting it soaring real disposable incomes up
to a record 9.6% in July. The upshot is that while prices are rising fast, income is rising faster and instead of a cost- of-living crisis, Russia is enjoying a consumer boom.
The Eurozone retail sales continued to flatline in the second quarter with
a negatable 0.1% rise in retail trade
for July, adding to the cost-of-living pressures, according to ING. Draghi says that real disposable incomes in the US have grown twice as much as in the EU since 2000.
Inflation has outpaced wage growth, resulting in a decrease in real wages
– the purchasing power of incomes adjusted for inflation. For example, in the United States, while nominal wages increased by about 5% in 2022, inflation was higher at 6.5%, leading to a decline in real wages.
One of the areas where the cost-of- living crisis is being felt most acutely is in the rapid rise in housing prices. Frustrated US millennials, who need to earn at least $110,000 a year to be able to buy a house, complain that they cannot afford to buy anymore. House prices climbed by 6.6% over the last year, with a 5-year growth of 7.1%, driven by high demand despite rising mortgage rates.
In Europe real wages actually fell by 2.4% in 2022, the steepest decline in decades, that came on top of soaring food prices. Yet house prices continue to climb strongly, outpacing the increases in average incomes over
the last five years, despite softening somewhat in the last year due to the economic slowdown. Germany has
Inflation rates in leading economies
Country
Inflation Rate (2023-2024)
United States
Canada
United Kingdom
Germany
France
Italy
Japan
Russia
China
Source: Trading Economics
3.2% (2024 projection)
3.3% (2024)
6.8% (2023)
6.1% (2023)
4.9% (2023)
5.6% (2023)
3.1% (2023)
9.1% (Aug 2024)
0.6% (Aug 2024)
Major economies housing prices, change in income 2019-2023 change
been one the most affected, where house prices jumped by 56% between 2010 and 2022.
Italy is the exception, where house price inflation has fallen over the last two decades, but young would-be homeowners are facing a different set of cost-of-living problems that have depressed fertility rates to become
the lowest in Europe: the Italian replacement rate is currently running at only 1.2 as young couples simply can’t afford to have a second baby. Draghi pointed out in his report that Europe
is suffering from a demographic crisis, as no country has a replacement rate
Year-on-Year Change in House Prices (2023)
5-Year Change in House Prices (Inflation-Adjusted)
5-Year Change in Average Income
Germany
France
Italy
Poland
Hungary
Czechia
United Kingdom
China
Russia
United States
-2.0% (Decline due to economic slowdown)
+3.1% (Urban demand)
-8.0% (Weaker demand)
+13.0% (High demand)
+9.5% (Strong rise in Budapest)
+4.8% (Stable increase)
+4.5% (Limited supply)
-5.3% (Decline amid real estate slowdown)
+9.7% (Housing boom in urban areas)
+6.6% (Steady appreciation)
+16.88%
+16.22%
-5.16%
+11.86%
+13.41%
+13.13%
+9.48%
-3.7%
+23.1%
+9.1%
+8.2%
+2.5%
+10.2%
+8.9%
+7.5%
+4.6%
+7.8%
+12.5%
+9.0%
Source: UN Food and Agriculture Organization
+7.1%
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