High inflation will last longer than estimated with rising interest rates and continued loss of purchasing power
Millions of households had already forgotten to check the mortgage receipts their bank charged them monthly. Spain, and the entire Eurozone, have lived a decade with the lowest, even negative, interest rates. But the landscape has completely changed. The European Central Bank (ECB) has revised the official price of money upwards to 0.5%. First consequence: those citizens who had forgotten the mortgage, re-analyze how much the fee will increase in future.
Mortgage receipts are the first major consequence of the impact of an interest rate hike with which the body chaired by Christine Lagarde wants to keep inflation under control. Or rather, the escalation in which the CPI (Consumer Price Index) has been in recent months. It had been ten years since Spain had experienced an interest rate hike, and it had been more than 40 years since the economy, like the entire European economy, had not remembered how prices could rise at the rate they are now. From fuel to food; from travel to cars. Are we prepared for this context?
The situation is not comparable, but in Argentina, one of the economies accustomed to living in inflation, prices have been changing hourly for years. Not for days. For hours. On this side of the Atlantic, the situation isn’t that extreme, but a large proportion of the products that make up the average shopping cart show a price increase of more than 10.8%, the latest CPI data provided by the INE in July .
To reduce the cost of the shopping cart, several tips can be followed that many citizens may have forgotten in recent years and even registered deflation. For example, compare between branches or do it within the store itself with different products. In addition, experts recommend caution with marketing strategies that try to convince the customer to spend more: distributing essential products in-store to force the public down all aisles. In addition, many supermarkets attach great importance to their guarantees and base their campaigns on this. They usually only cover branded products, the bottom line is that if the shopping cart costs less elsewhere, they will refund you the difference.
Financing is the order of the day for many families. But with the decision taken by the ECB recently, the cost of purchases will rise. It already did, when the average interest rate on consumer credit rose from 5.5% at the end of 2021 to 6.6% today. Payment in installments is more expensive. And so it will be in the coming months. For this reason, and in order to avoid later disappointments, it is advisable to analyze all the terms of the credit to be signed, not only with regard to interest, but also in terms of commissions or fees, as well as the possibility that it is a ‘revolving’. ‘ card with an average interest rate of more than 18%. And if possible, do not finance a product for longer than it will be used.
Along with consumer credit, the biggest impact comes from high inflation and the rise in mortgage rates. If you belong to the two-thirds of households with a variable mortgage, there is little you can do. It is the new reality, that of higher fees. Although the main asset these families or companies have is to pay off some of the mortgage debt, to lower the fee or to take years of financing off it. For the time being, a change of the mortgage modality – to a fixed one, for example – can be more expensive than what is saved with interest, due to commissions and expensive procedures that have to be carried out at the entity, notary or registry.
The only good news in this context comes from savers. They will see how their banks start offering profitable products, such as historical deposits. However, it is advisable not to enter into long-term products that will ensure that there is no liquidity in the family budget in the event of an unforeseen event. In addition, the rate at which the profitability of savings products increases will be much slower than what the Euribor and other credit indices are already doing.
The government’s president, Pedro Sánchez, already urged unions and businessmen to sign an income pact just days after the Russian invasion of Ukraine began. An agreement that involved moderation in salaries and also in corporate profits. But there the proposal lingered. Until the vice president, Nadia Calviño, found it back a few days ago, without any progress and waiting for all parties to tackle this thorny issue after the summer.
One of the figures who most pushed for moderation in wages, profits and even pensions and government salaries was the governor of the Bank of Spain. Pablo Hernández de Cos has constantly stressed the need to reach an agreement to collectively address the impoverishment caused by the sharp rise in inflation and warned that attempts to avoid it could lead to an inflation spiral that will make the economy less competitive. to make.
The need for this income pact stems from the acknowledgment that for the Eurozone and Spain, much of the disruption is related to the rise in energy prices, imports of which are essential and lead to general impoverishment. “This recognition makes it necessary to share that loss, and if all economic actors try to avoid the loss, we will find ourselves in an inflation spiral with a loss of competitiveness,” he warned.
De Cos has defended that an income pact means “agreeing on a distribution of that loss” between companies, with a reduction in margins, but also among employees, with wage increases below inflation, and also in the public sector.
In addition to the impact on the shopping cart, the rise in mortgage payments or the financing difficulties as of now, the constraint on wages and operating results could be a key to preventing the economy from entering a dynamic of rising prices that keeps getting higher.
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.
