Low-income families (40%) struggle with inflation and high prices

Portugal’s poorest households earn around €1,250 per month gross, according to a Bank of Portugal study

The Bank of Portugal has warned that higher interest rates and inflation are pushing around 40% of families onto the bread line as their disposable income is eroded in 2023.

In fact, two-fifths of the population — the poorest in the country — are not necessarily those who have the biggest bank loans or overdrafts but are being hit in the pocket more than those with higher salaries.

According to a study by the Bank of Portugal, and based on information available from the future markets, for example, Euribor at three months – one of the benchmark indices for high street lending banks — will be seven times higher in 2023 than in 2022.

This is down to galloping inflation and higher interest rates which, in the case of inflation, the BdP estimates at 8.1% in 2022 and 5.8% in 2023.

The increase in prices erodes the incomes of households that are less affluent since these spend the lion’s share of available income on essential goods, food and energy. If their margins were already tight before the crisis, with the effect of inflation and interest rates, they will become even tighter.

In the poorest group are 809,000 households earning on average €15,000 gross per year (€1,250 per month), which covers 20% of the national total of four million aggregate households, according to the data published by the Bank of Portugal.

The second group of poorest families, numbering 807,000 families (around 20%), these earn around €23,000 per year (€1,906 per month gross).

The BdP concludes that both groups are likely to lose income in net cash terms because of the crisis.

The annual fall in disposable income is around 2.1% for the poorest fifth of the population,  while in the second segment stands at around -0.3%.

The situation will be worse for those families that have mortgages at variable interest rates (25%).

The crisis, which is dampening private consumption and reducing company investment and exports, will mean that Portugal’s real GDP will only be 1.5% next year.

However, the BdP’s inflation forecast for 2023 has been revised upwards from 2.7% by June 2023 to 5.8%.

Source: Essential Business