By Wael Rashed
Business Development Manager and Official Spokesperson for Evest
When a paycheck runs out before the end of the month, talk of economic recovery becomes a test of credibility. Employees do not need to read an economic report to know that their purchasing power has declined. They need only compare what their shopping bags contain today with what they held a few years ago, or look at the balance remaining in their bank accounts after paying rent and bills.
This is where the gap widens between the economy that institutions measure through growth and inflation rates and the economy that households experience through what they can afford to buy, postpone, or do without. Official figures may be entirely accurate, while the financial strain people feel is just as real.
The problem begins when governments treat improving indicators as sufficient proof that people’s lives are improving.
Wael Rashed places this gap between economic indicators and households’ lived experiences at the heart of his analysis.
Prices Do Not Go Back Down
One of the most consequential misunderstandings in economic debate is the confusion between falling inflation and falling prices. When inflation declines, prices rise more slowly, but they do not necessarily fall. The Dutch central bank emphasizes this distinction in its explanation of the relationship between inflation and price levels.
For example, if the cost of a hypothetical basket rises from 100 to 120 and its inflation rate then slows to 2%, the basket will cost 122.4. The new rate may sound reassuring, but the household is still paying considerably more than it did at the starting point.
Wages, meanwhile, may not have caught up with those increases in the first place. Even when wages begin to grow faster than prices, making up for previous losses takes time. In presenting the findings of its Global Wage Report 2024–2025, the International Labour Organization noted that the return of positive real wage growth was not enough, in most economies, to close the gap created by the cost-of-living crisis.
This is the legacy that remains after an inflationary surge subsides: higher prices, depleted savings, and accumulated financial obligations.
Wael Rashed draws attention here to the lasting impact of higher prices even after inflation slows.
The Average Does Not Pay the Rent
Not all households experience inflation in the same way. The headline index reflects a representative basket of spending, while the share of household budgets devoted to housing, food, energy, and transportation varies.
A family that spends most of its income on essentials has little room to adjust. It can postpone buying a phone or cancel a trip, but it cannot put off eating or getting to work. If the cost of these necessities rises faster than its income, lower prices for goods it does not buy will provide little relief.
That is why an increase in average wages is not enough to assess everyone’s circumstances. The more precise questions are: Who received the increase? And how much of it remained after taxes, housing, and essential expenses?
Overall outcomes may improve while large segments of society remain stuck in place. When official discourse overlooks these differences, people feel that their everyday experiences are not being acknowledged.
Wael Rashed highlights the importance of recognizing how the burden of living costs differs from one household to another.
The Middle Class Is Using Up Its Financial Safety Margin
The crisis sometimes appears in small decisions that are difficult to capture in economic headlines: medical treatment is postponed, an educational activity is canceled, home maintenance is delayed, or savings are used to cover an expense that wages once paid for.
These decisions erode a household’s ability to withstand the next shock. As its financial cushion shrinks, a car breakdown or temporary loss of income can turn into a financial crisis.
At this stage, credit becomes a way to bridge the gap. But credit does not increase income; it provides cash today in exchange for an obligation tomorrow. If the shortfall continues, the next paycheck arrives with part of it already committed to repaying the previous month’s expenses.
The issue then extends beyond consumption to confidence in the future. People who struggle to finance their present needs become more hesitant to buy a home, start a business, or take on a long-term commitment.
Wael Rashed links the erosion of households’ financial safety margins to declining confidence in the future.
Restoring Purchasing Power Requires an Integrated Policy Approach
Reducing inflation is an essential achievement for protecting incomes and stability, but it is only the beginning. Its benefits become complete when households can sustainably restore their ability to spend and save.
This requires monitoring real wages and disposable income after taxes and transfers, while understanding how pressures differ across income groups. It also requires addressing housing costs and improving transportation, education, and healthcare. Good public services reduce what families must pay out of pocket.
Businesses also have an economic responsibility: to invest in productivity and skills and to develop wage and employee-retention policies that reflect the value of work and the cost of replacing staff. Ultimately, employees’ purchasing power is linked to the market’s ability to buy what businesses produce.
Wael Rashed points to the role of businesses in supporting purchasing power through productivity and wages.
Government support, meanwhile, should reach those most in need and be funded sustainably. Uncontrolled spending may provide temporary relief, only to recreate pressure through inflation, taxes, or higher debt-servicing costs.
Above all, governments need a more precise definition of economic success. Growth, price stability, and employment are essential indicators, but they must be considered alongside a practical question: Are households better able to meet their needs and build reserves for the future?
In this context, Wael Rashed emphasizes the importance of measuring recovery by its impact on households’ lives.
When a paycheck runs out before the month ends, part of the recovery remains unfinished. People will judge the credibility of promises where their daily calculations begin: by what they earn, what they pay, and what they have left.
Sources
De Nederlandsche Bank — Why prices can keep rising when inflation falls
https://www.dnb.nl/en/the-euro-and-europe/inflation/falling-inflation-yet-rising-prices-how-does-that-work
European Central Bank — Measuring inflation and differences in households’ experiences
https://www.ecb.europa.eu/ecb-and-you/explainers/tell-me-more/html/what_is_inflation.en.html
International Labour Organization — Wage recovery and the purchasing-power gap
https://www.ilo.org/resource/news/wage-inequality-decreasing-globally
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