Rising Inflation and Mortgages: Here’s What’s Changing for Income, Pensions and Savings

The first effect of inflation comes on spending and bills. But the long wave of general price increases, which causes our income to lose its value, is also affecting our financing, our savings and our mortgages. On the wage front, the essence of contract renewal is still in place, while pension and severance payments have been adjusted almost automatically and completely.

Markets are eyeing inflation and moving according to expectations, anticipating potential future moves by central banks, which will certainly raise interest rates to curb prices. This mechanism has already had consequences for mortgages – with a 1.5/2.0 percentage point rate hike – and for savings. But let’s see how.

Mortgages

It is clear that the effect of inflation and increasing rates will have a different effect depending on the type of mortgage. Euribor-related variable rate mortgages will be affected: at the beginning of the year this reference rate had a negative trend (-0.5 twelve-month rate on January 3, while at the end of June it was 1.04%): it increased by more than one and a half points. No change, of course, for older fixed-rate mortgages. But be warned, those who have to get a new mortgage now don’t assume that a fixed rate is the best. For this type of mortgage, the reference rate is called Eurirs, or Irs: The twenty-year mortgage rate has risen from 0.60 at the beginning of the year to 2.41 on June 29. In other words, the market has already largely adjusted to the expected price increases.

savings

Inflation means not only higher prices, but also a decrease in the value of our purchasing power. The money left in the account or kept under the bricks loses its value. But even those who are invested must make gains, while stock markets are in sharp decline and bond markets are burdened with the fact that higher prices will reduce their value. The advice is to be patient and wait for the healing to occur.

government bonds

Government bonds are generally characterized by a capital guarantee “at maturity” and by a coupon (the yield is usually semi-annual). If there are price increases on the way, the coupon is not adjusted and remains low compared to the market: so the invested capital loses its value, but this is only if we want to sell the investment in advance. However, the latest version of the BTP introduced by the Treasury, BTP Italia guarantees a coupon of a minimum of 1.6% but also a six-monthly adjustment of the Italian inflation rate, as well as a double loyalty bonus for those who hold the bond until the bond expires. 2030.

Salaries and renewals

With inflation at 8%, wages lose their value. The debate about adapting to negotiating the renewal is very hot and will heat up even more in the fall. The current reference for the adjustment is the IPCA (European Harmonized Consumer Price Index), which in the latest Istat survey was 8.5%, however it must be calculated net of prices for imported energy goods. Obviously, since most of the inflation now arises from the cost of importing gas and oil, unions do not see this as an appropriate criterion. On the other hand, companies fear that an increase in wages, at a time when production is difficult, may lead to an extension of the crisis. The proposed solution is to reduce the tax wedge, that is, the difference between the net salary that goes into the employee’s pocket, and the gross salary paid by the employer with taxes and contributions. This means less taxes and therefore public resources are needed.

Safe End of Service Pensions and Benefits

As of this year, the pension index has been reintroduced. Pensioners who receive a check up to 4 times the social check (and thus up to 2,000 euros) will receive a full reassessment, those aged 4-5 times 90%, exceeding this 75% limit. It is also useful for revaluation of severance pay provided which, according to current rules, is revalued at 1.5 per annum plus 75% of the previous year’s CPI, this year’s value being 1., 9% based on the December figure but this year Next it will be much higher.

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