The price of the mix of inflation and high rates: 61 billion burned in household and business accounts

MILAN. The piggy banks of households and businesses are threatened by the crossfire of rising rates and skyrocketing prices. This is what Fabi, the Autonomous Italian Banking Federation, affirms in a broad analysis released today. The effects are already visible: the money parked in current accounts has dropped sharply in a few months. The trend could accelerate and erode in a short time the treasure that the Italians have set aside with difficulty over the years. The beneficiaries of the framework are the banks with profits that grew by double digits in 2022 on the wave of higher rates for households (and interest paid on accounts that remained almost zero).

In practice, says Fabi «the rise in the cost of money by the Central Bank has changed the cards on the table for households and businesses and with an imperfect mix of rates and inflation, the wealth accumulated over the years runs the risk of going up in smoke short times”. «Unbridled race in prices, more expensive loans and loss of purchasing power are just some of the major consequences of a perverse economic mechanism that undermines the Italians’ treasure and continues to put their saving capacity to the test».

The data is alarming: between December 2021 and March 2023, the total balance of household and business current accounts fell by over 61 billion euros, from 2,076 billion to 2,015 billion; in just three months, from December 2022 to March 2023, the negative change amounted to over 50 billion.

«In the meantime, the gap between the trend in interest rates applied to loans and mortgages and those on deposits and accounts is widening more and more – says Fabi -. If the former have, in fact, increased significantly over the years, allowing banks to multiply their revenues and achieve the sole objective of increasing profits, thus favoring shareholders with ever greater dividends, the others have remained almost unchanged, demonstrating how credit institutions have little interest in rewarding those who deposit their liquidity in the bank. A reality that is confirmed by the profits as at 31 December 2022 of the major Italian credit institutions, equal to 12.8 billion euros, up 66% on 2021, a sign of increasing revenues, lower credit costs and unchanged operating expenses” . “It should be noted that banks have begun to raise rates on certain forms of funding, such as deposits with fixed or fixed terms and on repurchase agreements, while they tend to maintain particularly low remuneration on current accounts, now increasingly considered a service and not a form of savings.

Reserves are also at risk
«As for the “reserves”, from the analysis of all the numbers of current accounts and deposits of the last two years, a sign of general suffering clearly emerges because the erosion of liquid assets in the portfolios of households and businesses leaves no doubts about the support that the Italian “piggy banks” have guaranteed to the country’s economy, but also on the difficulties that they continue to experience in preserving their liquidity accumulated with sacrifice and a sense of protection for a still uncertain future – notes Fabi -. Already in the first months of 2022, the cost of living and inflation not only reversed the trend in household savings, almost close to zero in the first five months (on average equal to 0.2% from January to May) and with decrease in the remaining six months, but have therefore begun to erode the reserves accumulated by the Italian production system (for a percentage equal to 1.4% or 4.4 billion euros), now devoid of financial resources to devolve to investments».

Italian households boasted deposits in bank accounts of approximately 1,163 billion euros at the end of 2021 and 1,174 billion euros in December 2022, while the liquidity held by companies on account stood at almost 428 billion euros at the end of 2022 and 423 billion euros last December. Overall, the two components exceeded 1,500 billion at the end of 2022 which, together with the cash and cash equivalents of non-profit organizations, social security institutions and insurance companies, came close to the ceiling of 2,015 billion at the same date, against 2,076 billion euros at the end of 2021. The overall decrease of the resources deposited was equal, in just three months, to a good 50 billion euros spent to cover consumption and investments. If we analyze all forms of deposits in bank accounts, the total deposits “looted” by Italians from December 2021 up to March 2023 are over 61 billion euros, useful for dealing with the economic damage suffered by inflation and the reduced purchase power.

The savings
«Faced with a period of credit crunch, also due to the effect induced by the surge in variable rates, drawing on one’s liquid accounts by sacrificing savings, albeit not very fruitful but still substantial, remains the only lifeline – says Fabi -. This is how the overall balance of deposits and current accounts in December 2021 was 2,076.8 billion euros, contracted to 2,065.5 billion already in December 2022, and then further decreased to barely 2,000 billion at the end of the first quarter of 2023 At the same date at the end of 2022, medium-long term time deposits of savers held 153 billion euros, down by 2.4 billion (-1.6%) on an annual basis and down doubled to 4, 1 billion (-2.6%) between December 2022 and last March. The red alert on Italian savings appears, in fact, with greater vigor, at the end of the first quarter of 2023 when it is clear that the economic difficulty of chasing the unbridled rise in prices with one’s own income capacity continues, in fact, to heavily erode the liquidity of the system. At the end of March of the current year, household deposits contracted by 2.14% – reaching a value of 1,149 billion euro – and that of businesses by 7.56%, reaching just under 390 billion. The average variation is 5% and, in monetary terms, approximately 25 billion euros for households and a good 32 billion for the business system».

Alarm numbers
«Overall, for the whole system of savers, in just three months a good 89.5 billion euros were burned on current accounts alone, almost 5 times what was drawn from the reserves of Italians in the previous twelve months (or 21.9 billion euros) . In March 2023, the current liquidity balance amounted to 1,368 billion euros, against 1,458 billion euros at the end of 2022, with a decrease of 6.1% in value. The contraction, which had already started between 2021 and 2022, was confirmed in the first months of 2023, as an increasingly evident sign of a climate of tension for households and businesses. Starting from 2021, the shift of a part of the liquid wealth to repurchase agreements and time deposits was useless, because the drop in total reserves parked on accounts in Italian banks was 3%”.