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Next Inflation affects salaries – deposits HOME • INSIDER • CYPRUS • Inflation affects salaries – deposits
& nbsp & nbspTheano Theiopoulou & nbsp; & nbsp;
Wages and deposits are among the victims of inflation. Inflation hit a record high in February, reaching 6.6%, while it is estimated to be even higher in March, with the announcement of the consumer price index by the Statistical Service expected on April 7.
Inflation rate of 6.6% means that for every € 1,000 the real purchase value of households has decreased by € 66, to € 934 in February, if we accept that the products whose prices are controlled are representative of the needs of an average household.
SEE ALSO: Inflation almost three times the forecast
In fact, the loss of income comes at a time when the effects of Russia's invasion of Ukraine and EU and US sanctions, focusing on energy costs, have not yet fully entered the market. Of course there is also the payment of ATA in salaries, which has been calculated at 1.27% in 2022. That is, at € 1,000 salary the increase from ATA is € 12.7 every month and thus replenishes a small part of the lost income of workers, which “eats” inflation. The ATA, however, is taken over by civil servants and a portion of employees in the private sector, where its payment is part of the collective agreements.
A spokesman for the Ministry of Finance told Parliament last Tuesday that for every 1% increase in inflation, € 10 million corresponds to the indexation allowances for civil servants. As noted, rising inflation, driven by uncertainty over the course of the war in Ukraine, is estimated to have a direct impact on the ATA, the Social Security Fund and pensions.
In addition to employees, depositors are also losing out on inflation. Deposits, in addition to zero or negative interest rates, also have to deal with inflation, which reduces the purchasing power of savings. Inflation during this period is combined with zero interest rates, which can not fill the gap from inflation and offer even a small return per year. What the depositor is interested in is the average inflation of the year. For 2022, according to the latest calculations of the Ministry of Finance, & nbsp; revised inflation of 4% is forecast. Even the initial revised forecast of the Ministry of Finance, immediately after the Russian invasion of Ukraine, that for an annual budget of 2.5% has been exceeded. The state budget, which was prepared in September 2021, predicted inflation of 1.5%, since at that time there was no negative factor on the horizon, other than the pandemic.
The damage to deposits from inflationary pressures
But what does inflation mean for the depositor? For example, in a deposit of € 10,000, the loss of the purchasing power of savings can be as high as € 400 per year, given that annual inflation will be 4%. In 2008 we may have had inflation of 4.7%, but then deposit rates were not zero or negative but averaged 6% and some banks offered a little more to ensure liquidity. This practically means that the depositor at that time gained an annual yield of 1.3% on his deposit, if inflation is deducted from the interest rate. & Nbsp;