Inflation will affect your wallet

02.02.2017 09:28|

It is estimated that inflation will accelerate to the level of approximately 1.5% in the forthcoming months. However, the price growth will be much more acute for many of us. This is because the prices of the products Poles buy most frequently, will increase the most. A commentary from Marcin Lipka, senior analyst.

Marcin Lipka, główny analityk

Inflation problems are similar to the average salary problem. According to the Polish Central Statistical Office (GUS), the average salary in the company sector was at the level of gross 4227 PLN last year. This amount seems unreal to many Poles. The average is usually overvalued by incomes from well paid employees who work in big cities.

Approximately two-third of salaries in Poland are below this average (the latest GUS data is for October 2014). Currently, we can estimate that approximately 50% of Poles earn less than gross 3420 PLN. This also means that after reducing this amount by the insurance fees, we are left with slightly more than 2300 PLN. And this is a far cry from the discussed average salary level.

Similar generalizations are used in the case of inflation. This index is based on data from statistic households. However, this essentially doesn’t even exist. If you earn relatively little, you will most likely spend the majority of your income on food or house maintenance. You avoid visiting restaurants and you don’t buy new furniture. However, a student who lives in a dorm is not interested in the costs of house maintenance, but focuses on education costs. As a result, the consumer basket is different from the one presented by statistics.

Personal inflation rate

The inconsistency of the reception of price changes is a global problem. The average inflation level in the United States has been low for many years. According to the Bureau of Labor Statistics (BLS), it was approximately 1.5% between 2008 and 2016. This means that the cost of living increased approximately 14% over nine years.

However, at that time health services prices increased 31%. This caused inflation to most likely have a larger impact on seniors. Nevertheless, young people also have a negative view on increasing prices. This is because education fees have increased by 42% since 2008, which is three times more than the result from the general inflation level would be.

However, the above mentioned social groups do not benefit from a decrease in prices of certain products. TV sets are the most vivid example. According to the BLS data, their average price decreased by 82% over the past nine years. However, neither seniors nor students are the mass purchasers of TV sets.

Theoretically, a personal inflation calculator could be a solution to this problem. Such tools have been implemented by the British Office for National Statistics in 2007 (ONS Personal Inflation Calculator). This is quite an interesting idea, which gives you an opportunity to enter your regular, as well as occasional, expenses. It also has fields related to the costs of maintaining your apartment or your car. Moreover, it allows you to compare your personal inflation level to a general increase in prices.

However, this method is quite complicated. It’s difficult to expect consumers to sum-up their daily expenses and divide them into separate categories. Moreover, every potential error would disturb the complete index and would create even more confusion than basic inflation index. As long as a significant percentage of transactions are conducted using cash, and banks and stores are not offering advanced tools for shopping analyses, it will be difficult to calculate the individual inflation level.

Significant growth

Regardless of calculation difficulties, the wallets of many Poles will feel the increasing prices. According to GUS data, fuel accounts for approximately 5.5% of statistical expenses. Let’s assume that your household consists of one person who owns a car and spends approximately 70% of the average net salary on consumption (2100 PLN). This would mean that in this case, fuel expenses would be at the level of approximately 120 PLN per month.

However, anybody who owns and uses a car knows that this amount is almost impossible to achieve. It’s reasonable to assume that fuel or diesel will cost you more than 200 PLN per month, which is 10% of this hypothetical budget. Let’s keep in mind that in December 2016, fuel prices were 8.9% higher than they were in December 2015.

This increase will likely double in January. According to Eurostat data, the average price of diesel, as well as of fuel, increased by approximately 20% over the course of one year. An increase in fuel prices alone will cause inflation to reach 2% for an average driver. Higher costs of transport will force an increase in prices of other goods and services as well.

According to the GUS data, food prices increased 2.5% over one year. This includes butter (16.7%), fruit (4.1%), sugar (27.7%), fish (5.3%) and pork (8.9%). It’s also worth keeping in mind that statistically less wealthy people spend a larger portion of their budget for food.

Poles will remember this year’s increase in prices very well because they concern most frequently purchased products. This will cause the reception of higher living costs to be even more acute than can be indicated by real calculations.


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