Experts predict prices will peak in April if Ukraine war ends by summer

Experts estimate that single household income (pocket) will decrease by about 2.2 percentage points as a result of war inflation in 2022. Rising prices in euros in Spain will deprive households of 16,700 million in purchasing power, according to forecasts. The Funcas think tank released its findings only after learning that the CPI (Consumer Price Index) was up 9.8% in March from the same month last year. The rate, which is a record high since 1985 and was ahead by 7.6% in February of the previous year, exceeded all expectations, which on average barely exceeded 8%.

The IPC has been above 5% for 6 months now. Funkas estimates that average inflation will remain at 6.8% year-on-year, while he believes the price growth threshold will be set in April, provided that the invasion of Ukraine ends in the second quarter.

“In the scenario of continuing pressure for the first three months of the year, the annual inflation rate averaged 8%,” said debt rating agency Scope Ratings.

First Vice President and Economy Minister Nadia Calvino clarified this Wednesday that a 73% increase in prices is in response to rising energy and raw material prices due to the war in Ukraine following the Russian invasion. When asked when the government expects inflation to escalate, he put it in limiting the cost of producing electricity from gas (a priority of the war impact response plan).

“We will be able to count on the European Commission’s authorization in the coming weeks to disconnect this gas price from the electricity market and start a downward trend in CPI from there,” he concluded.

“Nothing indicates that this is a trend [de subida de los precios] “It’s coming to an end because measures are not being taken as quickly as this situation would require,” said Eduardo Irastorza, a professor at OBS Business School. “The lack of confidence among citizens that the government’s shock plan approved this Tuesday will suffice is still hidden,” he continued.

“Energy prices are completely out of control,” said Angel Talavera, chief economist at Oxford Economics in Europe. Will be announced sooner rather than later. ”

Funcas experts believe that the “palliative and short-term” response measures of the war impact plan will hardly alleviate inflation by one percentage point, “and increase the deficit” due to increased government spending and. Low income in conditions of low economic growth as an irreparable result.

Lease agreement

“The income agreement is more relevant than ever and should affect everything: business benefits, salaries, rents, pensions …,” warns Ignacio Conde-Ruiz, UCM professor and deputy director of Fedea.

The shock plan has already limited housing rental renewals to 2% for three months. On the retirement side, Funcas estimates that CPI-related expenses will increase by $ 10 billion this year. “Under the revenue agreement, it is essential to avoid the widespread use of automatic indexing provisions in consumer goods, which could further exacerbate the current inflationary process,” Pablo Hernandez de Cosa, the governor of the Bank of Spain, warned on Tuesday.

Finally, in a conflict between companies experiencing rising costs and workers stifling rising prices in general and electricity and staple foods in particular, “revenue loss must be shared,” Hernandez said. De Kos.

The governor recommended “general or overly strict measures, taking into account the heterogeneity of sectors, companies and workers, to allow adjustments to be made to the most vulnerable groups.”

And it offers “multi-year commitments to increase wages, complementing, where necessary, employment protection obligations. [también contemplada en Plan de choque], Which provides agents with assurance of their consumption and investment decisions. ” The effort is combined with a “commitment to moderate business margins to ensure the competitiveness and economic growth of Spanish companies as little as possible,” he concluded.

The importance of the ECB

One of the biggest imbalances for the Spanish economy is the budget deficit. “It will still be at 4.5% [gasto frente a ingresos respecto al PIB] In 2023, “warn Funcas experts. “Public debt, in turn, will exceed 112% of GDP next year; “And, perhaps, the interest burden has already fallen and will start growing from 2022,” they added.

The higher value of debt depends on the European Central Bank (ECB), which is in a dilemma to respond to the peak of inflation by withdrawing money from the debt market and raising official interest rates (which are at a minimum) without suffocation. States and the most indebted companies and households with this tightening of funding conditions.

“In this crisis, we find ourselves in a very specific situation, where inflation is mainly caused by supply shocks and slowing economic growth,” explains Scope Ratings. “In other words, the rise in interest rates by the ECB in the current situation can not directly address the inflationary effects associated with rising energy prices. Therefore, we hope that the institution will act flexibly, in accordance with its recent messages, ”the agency added.