With inflation that doesn’t seem to be waning, the cry to protect purchasing power is getting louder. Paradoxically, the Belgians give the state millions of euros for a piece of cake. The government was able to raise more than 20 million with the issuance of state bonds. The returns are far too low to keep up with inflation.
Belgian inflation was 9.94 percent last month, the highest level since March 1976. The inflation report of the Belgian statistical office Statbel also shows that the increased energy prices are driving up the price tag of other products. This is also proven by a price comparison by the consumer organization Test-Achats, which shows that the products in the supermarket have increased by an average of 12.33 percent compared to last year.
More than 20 million euros
It therefore comes as no surprise that the cry for more purchasing power is getting louder and louder. Yet many Belgians seem to have no problem with the same inflation squeezing their savings. In our country, about 300 billion euros is parked in savings accounts. At most banks you have to be satisfied with an interest rate of 0.11 percent, which results in a loss of purchasing power of 9.83 percent.
This will undoubtedly explain why the state bonds are doing so well. In this way, the state was able to borrow 20.6 million euros from the Belgian population. The ten-year government bonds (with a gross interest rate of 1.70 percent) were the most popular: they were subscribed for more than 8.7 million euros. The five-year government bonds (interest rate of 1.05 percent) yielded 8 million euros, the eight-year (1.40 percent) yielded 3.8 million euros.
Belgian is addicted to security
We wrote earlier that mainly the state benefits from such rates. After all, they can borrow money very cheaply. Investors, on the other hand, have to lock in their capital for a certain period and in return receive a very modest return, after deduction of a withholding tax of 30 percent. Anyone who entrusts their capital to the state for ten years must be satisfied with an annual net return of 1.19 percent. That’s a piece of cake if you know you’ll have to miss out on your capital for a decade.
Belgians therefore seem willing to sacrifice part of their purchasing power in exchange for security. Admittedly, the returns are higher than on the savings account, but the invested capital still loses value. At current inflation, you lose 8.75 percent of purchasing power. The loss of purchasing power may decrease as inflation falls.
It is true that the depreciation of money must weaken to 1.18 percent if one wants to achieve a positive real interest rate (with a ten-year government bond). We are currently very far from such a situation. The chance is small that the European Central Bank (ECB) will lower inflation to that level. After all, the regulator aims for a currency devaluation of 2 percent in the medium term.
The government is already preparing to issue new state bonds. In December, it will normally go around with the hat again.