The very high prices are forcing to limit purchases, which reduces company turnover and slows investment
The Spaniards are tightening their belts. Runaway price increases and uncertainty about the future are forcing consumers to think carefully about their purchases before spending. Making the same purchase as last year costs 200 euros more per person, which translates to 800 euros extra for a family of four this year, to an average of 9,200 euros per household, data from Allianz shows. A situation that, despite some miscalculated promises, will continue into the second half of the year, giving up hopes that this would be the year out of the crisis.
Eggs cost 25% more than a year ago, milk 16% and bread 13%. But what is most striking is the increase in the oil price, no less than 45%. With this scenario, the Spaniards have no choice but to adjust their consumption habits. The consultant Kantar notes that four out of ten families are looking for promotions with their purchases, replacing some foods with others and preferring white brands. So far, household spending has been reduced by 3%, but they fear that this will be 10% in the second half of the year because of savings up to now.
In its most recent economic outlook report, the Bank of Spain admits that it had not foreseen the collapse in demand observed since the beginning of the year. Their forecasts indicate that household consumption will grow by just 1.4% this year, compared to 4.5% three months ago, the same pace that closed 2021 after the collapse of the year of incarceration (-12%). But the OECD goes further and expects a near-zero growth in consumption, of 0.1% for this year, where a strong boost (3.7%) was previously expected as a result of the release of the excess savings generated by the pandemic .
“Society is facing a perfect storm in which the cost of energy and raw materials is causing a general increase in prices, including in food,” explains Ignacio García Magarzo, General Manager of Asedas, the Association of Distributors, Self-Service and Supermarkets. According to him, food companies have been engaged in “a price-control exercise” for months so that consumers feel as little pressure as possible and avoid a “reduction in consumption like we experienced during the 2008 crisis”. So the price increase could be noticed even more in the rest of the year.
Van NielsenIQ tell them that the Spaniards are reducing consumption of the products that have risen the most in price, although for some, such as oil or milk, it is “hard to stop buying them”. According to their data, households have reduced oil consumption by 1.7% after a price increase of almost 45% in May. A similar decline has been observed in milk, which is difficult to replace with another food. But that of fruit and vegetables was greater, at -3.3%, after having become 8.7% more expensive. In addition, products such as pasta are now sold more than before (+7%) probably due to the emergence of other more expensive products such as meat or fish, the advisor notes.
Moreover, despite the May CPI marking 8.7% – the highest since the 1990s – the increase from a year ago in the case of food is 11%. The agri-food chain as a whole is facing a significant increase in costs that “are not fully passed on to consumers”, García Magarzo reveals. Which makes us foresee an even stronger increase in products as the year progresses as companies cannot continue to accept that loss of profit margins.
There are even companies that see their economic sustainability at risk in the short and medium term, assures the Asedas director, describing that distribution companies have to work every day, they cannot go into technical downtime (like some industrial sectors) depending on the price of electricity, now that electricity has become the main cost item for most of them.
The summary would be: high prices affect consumption, which in turn affects the company’s sales, and this means “undoubtedly lower economic growth”. That’s how Pedro Aznar, professor at Esade’s Department of Economics, Finance and Accounting, explains it. In his view, high inflation has several effects, such as reducing the purchasing power of households, who have to pay more for energy and food, implying a smaller available budget for other goods and services, which directly affects the Gross Domestic Product (GDP). GDP).
Of course, the hope that remains for us is that with more subdued inflation, “economic recovery would be easier because there is manufacturing capacity,” says Aznar, pointing out that “uncertainty and high prices” are the main threats to our economy. For this reason, although the inflation spiral will have “a certain permanent character”, it will not be as pronounced in 2023 as it has been so far, implying that “next year will be better than this year” in growth and provided the geopolitical tensions are moderated.
Tourism is currently being positioned as the lifeblood of the Spanish economy, at least this year. International traveler arrivals are just 8% below 2019 figures and a record summer is expected despite rising transport and accommodation prices.
Adding to this perfect cocktail is the rise in interest rates that central banks are targeting to curb inflation, making credit more expensive and falling investment rates, Aznar notes. And of course uncertainty, “which is always an aspect that hinders investment” by holding back purchasing decisions.
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.
