Inflation erodes disposable incomes as households squirrel away cash

Irish households continued to save a large proportion of their disposable income this summer, possibly in anticipation of a difficult winter and higher energy bills.

Central Statistics Office (CSO) data published on Tuesday indicate that households in the Republic squirrelled away 19 per cent of their income in the three months to the end of September, down slightly from 20 per cent in the previous quarter.

However, the data also shows that the standard of living – measured by total disposable income, which includes earnings, interest and social welfare payments – has declined in three of the past four quarters, down from a peak in the third quarter of 2021, which marked the highest level in 24 years.

Adjusted for seasonal effects, total disposable income was down 0.8 per cent in real terms in the third quarter compared with the previous three-month period.

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While household earnings increased in the third quarter of 2022 – due to more people being employed – inflation outpaced the rate of earnings growth, leading to a further decline in living standards in real terms between July and September. The annual rate of inflation averaged out at just over 9 per cent for those three months.

However, the wage bill increased across almost all activities within the economy, the CSO said, with growth highest in the public administration sector and the wholesale and retail trade.

The Economic and Social Research Institute (ESRI) warned in June that Irish households were facing the biggest decline in living standards since the post-2008 recession this year as the rate of consumer price inflation erodes earnings growth, leading to a decline in real earnings. On Tuesday, CSO statistician Peter Culhane said: “Current price income – or nominal income, that is, without taking account of how inflation reduces purchasing power – has been rising steadily as more people are in work and the average wage is going up. However, real income has declined in three of the last four quarters as price increases have outpaced incomes.”

The rate of savings, meanwhile, fell by roughly 1 per cent in the third quarter, with households saving 19 per cent of their disposable income. The savings rate may have declined in the month due to an increase in the volume and value of consumer spending.

However, the rate of savings remains well ahead of pre-Covid levels, the CSO said. “This is part of a slow trend toward lower saving seen over several quarters,” said Mr Culhane. “The saving level remains above its pre-Covid-19 level of 10 per cent as some of the savings habits developed during the restrictions are maintained. Households have generally decided not to spend their savings, but to continue to add to their assets and reduce their borrowing.”