Inflation is often seen as the enemy, raising prices and making life costly. However, under the right conditions, it can make your debt easier to manage. Let’s break it down practically for your financial future. How can balanced inflation shrink your debt?
The Debt Burden: Then vs. Now
Imagine taking out a €100,000 loan today. If inflation is low (2%), your salary won’t increase much. With moderate inflation (5%), your wages may rise faster. This growth makes your loan feel smaller compared to your growing income over time.
Take two individuals, Aoife and Conor. They both earn €40,000 and take out the same €100,000 loan today.
If Aoife lives in a world where inflation is 5%, her salary might rise to €60,000 in 10 years. It would increase further to €90,000 in 20 years.
Conor, in a low-inflation world of 2%, only sees his salary grow to €44,000 in 10 years. In 20 years, his salary increases to €49,000.
Even though both still owe €100,000, Aoife’s loan payments take up a much smaller percentage of her income over time. Conor, on the other hand, still feels the weight of his loan, limiting his ability to save and invest.
The Missing Link: Inflation and Wages
For inflation to work in your favour, wages need to keep up. This means that while prices go up, wages lag behind, making debt relief harder to achieve. That’s why we believe public sector wages should be tied to inflation—ensuring workers don’t fall behind.
In Belgium, for example, there is an automatic wage indexation system that adjusts salaries based on inflation rates. This mechanism helps protect workers’ purchasing power by aligning wage increases with the cost of living. However, in many European countries, including Ireland, this is not yet the case.
If you’re wondering how inflation affects different sectors, check out this recent analysis on wage growth trends.
The Right Balance
So, should we hope for higher inflation? Not exactly. Too much inflation can outpace wage growth and make essentials unaffordable. A moderate inflation range — between 1% and 5% — can help the European Central Bank to maintain balance, supporting economic stability. Find out more about our Flexible Inflation Target proposal.
How Balanced Inflation Can Work For You
Lock in Fixed-Rate Loans Your payments remain the same while your salary increases.
Invest in Assets That Appreciate Real estate and stocks tend to grow with inflation.
Negotiate Salary Adjustments If inflation rises, ensure your pay keeps up.
Collective Action is the Foundation of Meaningful Change
The way we manage inflation and wages affects everyone, and it’s time for a smarter approach.
Join the growing movement of citizens dedicated to revitalising our communities, strengthening our economy, and shaping the future of Europe.
- Download the Ballot Paper: This document outlines key demands for fair economic policies and stronger protections.
- Present It at Your Union Meeting: Raise the proposal in discussions and advocate for its adoption.
Together, we can build a Europe that works for everyone.