Berlin For Marcel Fratzscher, the matter is clear: “Inflation was and is not only far too high, it also affects people with low incomes much more severely,” said the President of the German Institute for Economic Research (DIW).
Individually, this group of people often experiences “inflation that is two to three times higher” than people with high incomes. Because they have to spend a large proportion of their monthly income on things like food, which are particularly affected by sharp price increases.
The development does not bode well for consumers. The credit agency Creditreform assumes that the economic situation for many private households will deteriorate considerably this year – despite the multi-billion government price brakes, which are intended to curb the drastic increase in energy costs.
“It is the combination of persistent inflation, long-term energy conversion and the interest rate break on the markets that will increase the financial burden on consumers in the medium term,” said the head of Creditreform economic research, Patrik-Ludwig Hantzsch, the Handelsblatt.
Reasons for the worsening of the situation for private households
As a consequence, Hantzsch expects the number of over-indebted people to rise again at the end of this year for the first time in four years. He estimates that the over-indebtedness rate, i.e. the proportion of over-indebted people in relation to all adults in Germany, should then be over nine percent.
For comparison: In November, Creditreform counted almost 5.9 million over-indebted people in its “Debt Atlas Germany 2022”, around 274,000 or 4.4 percent fewer than in the previous year. This was the lowest value since the evaluations began in 2004. The over-indebtedness rate fell from 8.86 to 8.48 percent within a year.
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Hantzsch explains the expected turn for the worse this year with the changed economic conditions. “The high balances that were built up in consumer accounts during Corona, coupled with a historic reluctance to consume, created a buffer that is almost gone today,” he said.
In a survey published in November on behalf of the credit agency Schufa, a good third of the approximately 1000 respondents (35 percent) assumed that their income would not be sufficient to continue to maintain the standard of living. Half of consumers (50 percent) said they had saved money in the past six months.
According to Creditreform, the situation for some companies is also likely to deteriorate. In order to prevent job cuts, the state first provided “massive” financial help, according to Hantzsch. But now support for the economy is being reduced again.
Call for higher minimum wage
“Many slobs are now encountering a highly volatile competitive environment.” Hantzsch therefore expects that the number of company insolvencies will increase significantly this year – with the corresponding consequences for jobs.
DIW boss Fratzscher called for a reduction in the tax burden for people with low incomes as a relief measure. “Specifically, politicians should reduce VAT on healthy and sustainable food and other basic necessities and in return increase taxes on fossil fuels and other unsustainable consumption,” he said.
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Irrespective of this, higher wages are “the most effective instrument” against overburdening low earners. “In addition, politicians have to think again about raising the minimum wage again, because the significant increase to twelve euros last year was already neutralized by high inflation,” said Fratzscher.
The SPD economic politician Verena Hubertz pointed out that there is no single measure that can be used to counteract this, as the reasons for over-indebtedness are often very individual. Nevertheless, she also sees a need for further action beyond the relief measures that have already been decided.
“If almost every tenth household in one of the richest countries is overindebted, then something doesn’t work in the distribution,” said Hubertz. “There is a need for big adjustments here, especially when it comes to wages and fair taxation between the different professions.”
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