Spain presents inflation below the region’s average, the first time since the start of the crisis
Inflation has become a major problem for governments, consumers and businesses in the major economies of the eurozone. It is true that Spain with an interest rate of 9% in September is already below the eurozone average (10%). But month after month, since the onset of the energy crisis, our economy has been under greater stress than the rest of the environment.
In harmonized terms (to compare with the rest of the eurozone countries), Spanish inflation stood at 9.3% in September, a figure far exceeded by countries such as Estonia (24.2%), Lithuania (22.5%) and Latvia (22.4%), while it is lower in other countries such as France (6.2%), Malta (7.3%) and Finland (8.4%).
But why does this gap arise between regions with the same monetary policy or with the same reference for gas prices? The first thing to keep in mind is that each state calculates its CPI based on its own average consumer’s shopping basket, which will be different in Spain than in France, for example. But besides that fact, there are other factors that explain the divergence.
José Emilio Bosca, professor of Fundamentals of Economic Analysis at the University of Valencia and associate researcher at Fedea, believes that “if you have more inflation than the others in an environment where the ‘shock’ is common to everyone – with regard to the inflation imported by the energy crisis is a symptom that you are worse off, either because of your production structure, because you have worse competition between sectors, or because of the different economic policies applied».
It is true that there are many reasons why the CPI rises more in one country than in another. But energy explains much of the exorbitant price increases in recent months.
For example, Germany’s increased reliance on Russian gas is at the root of the sharp rise in the CPI, which rose 10% in September. While France and Spain have managed to reverse the trend. In addition, the experts recall that “it makes sense that countries with a more powerful industrial sector, with intensive use of energy, now present higher rates.”
It should be borne in mind that the weight of energy in each country’s CPI is different. And the OECD believes that to all this we should add the fact that in each region there are different types of contracts with electric companies and marketers. This would explain, at least in part, the sharp rise in inflation in Spain as energy prices started to rise, as the INE only includes households with contracts on the regulated market in its statistics. That is, those directly related to the evolution of wholesale market prices.
Experts point out that another reason for the gap between countries is the different interventions applied by governments during these months. They range from discounts on petrol or the gas cap applied in Spain to the model that facilitates price regulation in France, with the nationalization process of the public company EDF. In these plans, the costs are borne by the authorities. But in the end it falls to the economy. And it does so with a different weight in each of them, as they are not common measures applied from Brussels.
Energy is central. But, as the economists at the National Markets and Competition Commission (CNMC) point out, “inflation is a complex phenomenon where several factors have an impact, and competition is one of them.” “In competitive markets, prices are better adapted to the ‘shocks’ of supply and demand,” they add. In other words, competition helps to make government measures – both monetary and fiscal – more effective in combating inflation or stimulating economic growth.
José Emilio Bosca agrees with Fedea that “if we have uncompetitive sectors, companies raise prices to restore profit margins. In an uncompetitive economy, it makes sense that there would be more inflationary pressures.
The greater or lesser flexibility of the economies is also a factor to be taken into account. “The greater the unnecessary or disproportionate intervention of the public sector in the market, the higher the level of inflation that occurs with ‘shocks’ of supply or demand common to all countries,” they indicate from Competition. For example, they warn that measures such as indexation of wages and prices based on inflation, as well as labor market rigidity, are “usually associated with higher inflation rates and a longer time before measures against them take effect”.
And the same is happening with the economic cycle itself, given the impact of the so-called second-round effects. “If there is a loss of purchasing power, as there is now, countries with more union power may be at greater risk of rising inflation as they will be more successful in demanding wage increases.”
Another reason for the divergence between countries may stem from economic expectations themselves. For example, if inflation in Germany is expected to remain in double digits in the coming months, the trend will be to raise prices so as not to lose more purchasing power.
Bosca explains with an example: “A person with a rental property will not lower his price if he thinks that he will continue to lose purchasing power in the coming months, something that can happen in a country where the situation is expected to improve.” example of how the heterogeneity of the different economies and their crisis management mechanisms has widened the inflationary gap between them.
The upward spiral of prices has led families to measure each of their expenditures down to the millimeter. In fact, many of them have been forced to take out savings that they had not touched until now. And not precisely because they spend happier, but because the budget with which they used to pay the bills or fill the shopping cart no longer meets that need.
The latest data from the National Institute of Statistics (INE) shows how inflation is already starting to hurt Spaniards’ savings. Statistics (with seasonally adjusted data) show that the savings rate in the second quarter of 2022 was 8.5% of their disposable income. They are 2.1 points less than in the previous quarter and also the lowest since before the pandemic. Namely from the fourth quarter of 2019.
Expenses and Income
It is true that the trend in the indicator has always been downward since the peak reached in the middle of the pandemic outbreak, when the savings rate was over 25% in the second quarter of 2020. But the evidence is that between April and June, Spanish households spent 187,534 million euros, 20,156 million more than in the same period of the previous year. And they saved 36,060 million euros. They are 8.741 million less at the same time, June, when inflation soared to 10.2% yoy.
The price increases, now having a particular impact on food, have made consumers pessimistic after the summer months. But it is not an exclusive situation in Spain. According to European Commission statistics, the index measuring consumer confidence in the region fell to -28.8 points in September. Never before, even during the worst of the pandemic, have lower levels been observed in the indicator, one of the best thermometers for purchasing and investment decisions in the coming months.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
