The Bank of Spain considers the loss of well-being due to higher prices inevitable and believes that pensioners should take this into account
Retirees represent a quarter of the Spanish population and should participate in a hypothetical income pact that the governor of the Bank of Spain again defended this Tuesday before the Senate budget committee. Pablo Hernández de Cos stressed the need to create an income pact where everyone assumes a “real loss of income”, through wage moderation and business margins to avoid the damaging effects of ‘second round’ inflation. This mitigation framework would include the minimum wage and temporary retirees, but would exclude minimum pensions or even a higher portion. Cos qualified that he does not question the link with the CPI approved by Parliament as a structural element, but that it would be compatible with a temporary restrictive measure, so that “the loss of well-being is shared among all”. Spain calculates that the loss of income due to the increase in the cost of goods this year will amount to almost three percentage points of GDP, i.e. some EUR 40,000 million, and that trying to avoid this “necessary” adjustment will only ” a more persistent and prolonged inflationary process ».
On the other hand, the Governor announced that the Bank of Spain will record losses in the next two or three years before the application of provisions, because the cost of its liabilities will increase more than the profitability of its assets, in line with the increase of interest rates, which also affects central banks. However, the Bank of Spain has 31,380 million in provisions with which it will cover these losses, although it will no longer be able to contribute income to the public accounts in the coming years.
Hernández de Cos expected the ECB to continue raising interest rates as inflation expectations keep it above the 2% target. And he reiterated the need and urgency of a fiscal consolidation plan that will reduce debt and the structural deficit. For next year, the National Budget Plan foresees a “high structural government deficit of -3.4%”, a level comparable to that of 2019 and which includes as structural income the increase in collections of recent years, largely due to inflation, so in reality this income increase is transient.
Source: La Verdad
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