Drum roll | Economy

We have known in the middle of Holy Week the worrying inflation data for March from the United States and Spain. They have sounded like a drum roll, or, worse, like a tambourine. In both cases, it has returned to levels not seen since the 1980s. The US data shows inflation beyond the rise in energy prices. There, core inflation —excluding energy and food— has reached 6.5%, and reflects the price pressures of an economy with a certain “overheating”, with a labor market at full employment and significant wage increases, the highest in the last two decades. Against this background, the market is discounting two consecutive rate hikes of 0.5% in May and June. The big question is whether trying to cool down the US economy a bit to control inflation will not put the brakes on the recovery.

The Spanish data (9.8% in March), being very worrying, still basically reflects the impact of the rise in energy, transport and supply tensions. The underlying stood at 3.4% which, although it is rising again, still does not show intense “second-round effects” that could be caused by wage increases and other production costs, if in the end they began to skyrocket in response to the current inflation. With worse effects because, in addition, the Spanish economy is far from full employment. The need to reduce uncertainty about the evolution of income (salaries, benefits, rents) in this inflationary context seems increasingly urgent. Call it an income pact or not, but the agreement must be closed with the greatest possible social and political consensus and ideally with a time horizon that goes beyond 2022. It seems that price growth above 5% —therefore, well far from the central bank target of around 2%—it is here to stay for a while.

This remuneration agreement should distribute the burden as widely as possible, with little chance of shielding certain income from the loss of purchasing power, that real impoverishment that we have had with the current energy bill, based largely on imports. It remains to be seen the impact of the gasoline subsidy and the new calculation of the price of electricity and if they achieve at least part of their objectives and contribute to lowering inflation. It is necessary to emphasize the need for energy savings with the greatest possible empathy, which would allow a reduction in demand and alleviate the upward pressure on energy prices. Pure law of supply and demand. It is also essential to redouble the commitment to a mix energy with a much greater weight of renewables.

It is time to avoid the main “second round effects” that would prolong —and aggravate— the inflation that would do so much damage to the Spanish economic recovery after the pandemic. Let’s not forget that, shortly, we will feel more pressure from the withdrawal of monetary stimuli from the ECB, which will not help to maintain a certain vigor in the recovery either.

He knows in depth all the sides of the coin.


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