Strong Inflation Drives Fall In Real Household Income – OECD
After releasing its latest inflation figures, the Organization for Economic Cooperation and Development (OECD) in August 2022 also released data about the impact on real household incomes.
Real household income per capita fell by 1.1% in the OECD area in the first quarter of 2022, contrasting with growth of 0.2% in real GDP per capita. This is the fourth quarter in a row that GDP per capita has outpaced household income per capita, reducing the gap observed at the onset of the pandemic. Real household income is now 2.9% higher than it was in the fourth quarter of 2019, while real GDP is 1.6% higher.
The decline in real household income per capita in Q1 2022 was partly due to increases in consumer prices, which undermined household income in real terms. Among the G7 economies, the impact of inflation on households in Q1 2022 was particularly clear in France, where real household income per capita fell by 1.9% and Germany, where it fell by 1.7%. Elsewhere in Europe, high household inflation also contributed to large falls in real household income per capita in Austria (minus 5.5%) and Spain (minus 4.1%).
Among G7 countries, Canada recorded the highest growth in real household income per capita in Q1 2022 (up by 1.5%). This was mainly due to growth in ‘compensation of employees’ (employees’ wages and salaries and social contributions by employers), which rose by 3.8% in nominal terms in Q1 2022. Country comparisons of employee compensation are available from the OECD database here.
Any perceived fall in household purchasing power is likely to lead to demands for salary increases, even though household incomes have increased faster than GDP since the beginning of the COVID-19 pandemic, as shown in the graph below.