The high inflation observed since 2021 is pushing up the household savings rate, but only temporarily

The evolution of the savings rate influences that of activity: in the long term, a lasting rise in the savings rate is favorable to the accumulation of productive capital and therefore generally to growth, but in the short term, it weighs on demand. Assessing households' trade-off between consumption and savings is therefore a key element in the development of a macroeconomic scenario.

Today, the impact of inflation on this trade-off raises questions. Faced with high inflation, will households devote a greater part of their income to immediate consumption, in order to avoid future price rises, or on the contrary, as empirical studies carried out in France in the 1980s pointed out, to their savings, in order to protect their real value? Is this behavior, known as the real balance effect, likely to delay the return of the savings rate to its pre-health crisis level?

In order to assess the impact of inflation on the household savings rate, this note proposes an estimation of the consumption function over the long term, using data available since 1949. The early 1980s, characterized, like the current period, by a high household savings rate and strong inflation, is thus included in the analysis.

This modelling shows that, over the estimation period, inflation does not have an impact on consumption in terms of level, but rather in terms of variation, with a rise in inflation leading to a temporary decrease in household consumption in volume terms. Conversely, the level of inflation does not seem to have a lasting significant impact on consumption and therefore on the savings rate, which calls into question the existence of a real balance effect in France.  

As a consequence, the post-Covid rise in the savings rate could be explained in part, but only in part, by the surge in inflation. This impact would be purely temporary, and inflation should therefore gradually cease to support the savings rate. However, the evolution of the savings rate in the coming years will depend primarily on the other, as yet unexplained, factors that have led to its increase from its pre-Covid level.


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