NZZ – Wie stark leiden die Menschen unter der Inflation?/How much are people suffering from Inflation?

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1. inspired by this post [here](https://www.reddit.com/r/Switzerland/comments/158yqrj/prices_in_the_eu/), I saw this article in today’s paper

   **deepl translate for non-German speakers**

   How badly do people suffer from inflation?

   A comparison of Switzerland with Germany shows some astonishing things

   A Swiss annual salary is worth 2860 francs less today than it was at the beginning of 2021. In Germany, the loss of purchasing power is similarly high. At least the typical Swiss has made progress in terms of assets – but the German has to cope with a minus there, too.

   Switzerland likes to see itself as an island of the blessed. Some things are better here than elsewhere, not least the economy. Inflation also serves as proof of this self-perception. It is true that Switzerland has not been spared the global trend of rising prices. In this country, however, inflation only climbed to 3.5 percent, while it peaked at 9.1 percent in the U.S. and 10.6 percent in the euro zone.

   Consumption is 288 francs more expensive
   If inflation abroad is many times higher than in Switzerland, the question arises as to whether the Swiss are also affected many times less by the loss of purchasing power. The calculation is not that simple. This is shown by an NZZ data analysis. It examines the extent to which citizens in Switzerland and Germany have been affected by the latest wave of inflation, both in terms of income and assets.

   The starting point of the comparison is the beginning of 2021. At that time, still in the midst of the Corona pandemic but long before the outbreak of the Ukraine war and the associated energy shortage, prices began to rise. While initially it was hoped that this was a phenomenon that would quickly disappear, the persistence of the trend soon became apparent. Inflation spread to more and more goods and services, it became more widespread.

   So far, inflation may have been less severe in Switzerland than in Germany. Over time, however, it has added up to a respectable level. Between the beginning of 2021 and mid-2023, inflation in Switzerland will amount to around 6.3 percent. In Germany, it reached 15.6 percent in this period, more than twice as high. One interesting detail is that food prices in Germany are more than three times higher than in Switzerland.

   Inflation in Germany is more than twice as high as in Switzerland

   If one takes into account that a Swiss household spent an average of 4564 francs per month on consumption in 2020, 288 francs more must be paid today for the same basket of goods. If we add the monthly increase in the cost of consumption, we arrive at 8626 francs for the period since the beginning of 2021. In Germany, where a household reported average private consumption of 2507 euros in 2020, the current additional price per month is 391 euros; added up since the beginning of 2021, a household has had to pay 11,733 euros more for its consumption.

   Real wage loss of 3.6 percent

   However, it is not the absolute level of inflation or sales prices that is decisive for the material well-being of individuals. What is decisive is which part of the loss in purchasing power has to be shouldered by the individual and which part is compensated for by wage increases. There are major differences here between the two neighboring countries. For example, German employees receive significantly higher compensation for inflation, not only in absolute terms but also relative to inflation.

   If the higher inflation compensation is taken into account, the actual impact on German households is already lower than a glance at inflation would initially suggest. This can be illustrated by looking at the median wage. This wage lies exactly in the middle of the distribution; half of all employees in the country therefore earn less and the other half earn more. In Switzerland, the median salary in 2020 was 79,980 Swiss francs gross, while in Germany it was 43,200 euros.

   The recipient of such a salary in Switzerland has suffered a real wage loss of 3.6 percent since 2021. The purchasing power of his annual salary is now 2860 francs lower than it was in 2020. This minus includes inflation of 6.3 percent in the two and a half years, on the one hand, and the inflation compensation paid by employers on average, on the other. It turns out that the price-adjusted wage loss accounts for more than half of inflation; in other words, the bulk of inflation in Switzerland is shouldered by the employee.

   However, this comparison should not lead to the conclusion that employees in Germany are less affected by inflation than in Switzerland. It is true that in Germany a higher proportion of inflation is shouldered by companies. However, the absolute loss in purchasing power of a median wage in Germany is still almost as high as in Switzerland – and this at a significantly lower wage level. In other words, higher inflation weighs far more heavily in a country comparison than the more generous wage adjustments.

   Wage restraint pleases the SNB

   For Swiss employees, it may be unpleasant that they have to bear a comparatively high share of inflation themselves. For the Swiss National Bank, however, this makes the task of fighting inflation easier. This is because wage restraint reduces the danger of a wage-price spiral. If such a spiral starts to turn, inflation becomes entrenched via second-round effects; higher wages and higher prices then swing each other upward. This danger is currently much greater in Germany than in Switzerland.

   To put it another way: What is optimal from the point of view of the individual, i.e. the highest possible inflation compensation, can become a problem for the economy as a whole. This also applies to companies. They have a business interest in passing on higher costs in full to prices. But if everyone does this, the price spiral will spin faster and faster. Someone has to bear the inflationary burden in the end, be it the employees, the companies or both. If everyone tries to hold themselves harmless, inflation will hardly go away.

   But if you want to know how badly private individuals are affected by inflation, you can’t look exclusively at incomes. For a complete picture, assets and their development must also be taken into account. Once again, the median values are used to compare the two countries. The median wealth in Switzerland in 2020 was 137,645 Swiss francs per person; in Germany, the amount came to 57,529 euros in the same year.

   Each person invests their assets – if they have any – differently. For simplicity, it is assumed that all individuals make the same allocation: Accordingly, 30 percent of assets are invested in global equity investments, 30 percent are low-interest savings, another 30 percent are invested as real estate assets (primarily in the form of owner-occupied housing), and the remaining 10 percent are held in cash, for which there is naturally no interest.

   Melting assets in Germany

   With such a distribution, the assets of a median Swiss person have increased by 6400 francs since 2020. This is thanks to equity investments, which have gained 5300 francs in value over this period, and real estate, which has increased by 4100 francs. Purchasing power, on the other hand, has been lost with money in savings accounts, especially since interest rates on savings are lower than inflation. The same applies to assets held in cash, which have lost value to the extent of inflation.

   Thus, only those Swiss who invested in equities or owned real estate were able to prevent real assets from melting away. In Germany, not even an investment in equities and real estate in the aforementioned amount of 30 percent each could prevent an erosion of wealth. Because inflation is higher there, the loss of purchasing power in savings accounts and cash is also more significant. Accordingly, the assets of the median German have lost purchasing power by 4,500 euros since 2020.

   The development of income and wealth shows: Inflation affects people differently. Poor people are hit harder than wealthy people. In the case of income, this is because a larger proportion of the salary has to be spent on consumption, which has become more expensive. And in the case of wealth, people with little money can usually afford neither stocks nor real estate, but keep their modest funds in cash or savings accounts; neither of which provides any protection against inflation. An increase in inflation is therefore usually accompanied by an increase in social inequality.

   Switzerland at an advantage

   What conclusion can be drawn from the country comparison? In Switzerland, wage restraint is greater than in Germany. A more significant part of inflation is borne by the labor factor, which is not self-evident in times of labor shortages. However, because inflation is lower in Switzerland, real wage losses are nevertheless smaller. Moreover, wage restraint facilitates the containment of inflation, which benefits everyone. The social partnership here, based on company solutions and consensus, is proving to be a plus compared with Germany’s confrontational wage policy.