Inflation grows at an annual 8.7% in the May CPI while the underlying one is close to 5%, which already reveals second-round effects caused by non-energy businessmen and unprocessed food producers. This second round effect is also detected in the extension of the high rises to more and more items in the shopping cart. Of the nearly 200 subclasses in such a basket, 46% grow at or above 5%, and almost 38% do so at a rate of 6% or above.
Until recently, the causes of inflation were transitory. All national and international economic organizations agreed that 2022 would be a year of extraordinarily high inflation, but that in 2023 inflation would return to around 2%. It should be remembered that the rise in prices already began in the last quarter of 2021: the strong resurgence in demand after the pandemic, the oligopolistic capacity of fossil energy producers to recover the profits lost during the drop in mobility and bottlenecks in the supply chains were the transitory causes that explained the rise in prices.
The invasion of Ukraine increased uncertainty, pushing prices higher. In particular, it amplified the root of inflation, which is no longer just energy, but also has a strong impact on food prices, which have grown by 10% in the last year, with rises of over 20% in some of its articles and whose scarcity – like energy – has a greater impact on the basket of vulnerable households due to its greater relative weight.
The partial embargo of Russian oil decreed by Brussels has added an additional factor of pressure fueling the price spiral, which has reinforced, in turn, the announcement by the ECB of the end of its expansive monetary policy, which has already raised the Euribor and with it mortgage interest rates, increasing pressure on purchasing power and the financial situation of households. Not a minor issue in a country like Spain, where the price of home ownership at excessive prices determines that for millions of citizens the payment of the mortgage supposes a significant erosion of their monthly income.
It would be advisable to issue a warning, taking into account the nature of the economic consequences of the measures regarding the war in Ukraine. If the European institutions and the member countries persist in the economic war strategy, they must also take control and relief measures typical of a war economy. Specifically, supranational resources must be enabled from the community budget to compensate the most vulnerable households, as well as establishing European controls on the price of basic goods and services, which prevent some companies from taking advantage of the situation to obtain over-profits.
To face the context of high inflation, while all the vital signs of the Spanish economy are finished recovering after the pandemic, it is necessary to face the journey collectively. The Government has reaped great successes hand in hand with the social agents, facing with effective policies the moments of high uncertainty that the Spanish economy and society have recently gone through. Now it shouldn’t be any different. The signing of an income agreement that distributes the increase in costs in a balanced manner could be the appropriate instrument to deal with uncertainty and avoid a price spiral, but also to deal with a withdrawal in consumer demand that would lead to the Spanish economy to an unwanted scenario of stagflation.
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However, there is no negotiation to achieve such a pact. Moreover, we observe, on the one hand, in business organizations an attitude far removed from the co-responsibility appreciated in the pandemic, which led us to a dozen social agreements. On the other hand, to a government that limited itself to suggesting the income pact, but disregarded it, in an incomprehensible attitude.
The Government must hurry to act. And do it with determination and with political sense. The market manages this type of situation in an inefficient and unfair way, and letting it act at will will increase social unrest and disappoint citizens, workers, retirees, vulnerable households, etc. The situation is complicated by the aforementioned irresponsibility in which the employers’ organizations have settled. As is known, they have rejected the signing of a national collective bargaining agreement that would serve to organize in a coordinated and balanced manner the distribution of the external increase in the prices of energy and raw materials between wages and high profit margins (located by above those of the Eurozone, let us remember the millionaire surpluses accumulated by non-financial companies: 211,000 million euros since 2016).
The lack of corporate commitment is already perceptible in the aforementioned underlying inflation. If we also look at the breakdown of the GDP deflator by sources of income, profits appear to be the only ones responsible for the increase in prices in the fourth quarter of last year and the first quarter of this year. Likewise, household consumption was cut by 3.7% at the beginning of the year and that of durable goods by 11.3%, which is a first indication that a slowdown in demand could be added to high inflation higher than expected.
The unions have decided to stress the collective bargaining processes to try to reach agreements that guarantee that wages are not the payoffs of this crisis. Certain conflicts are beginning to have an important following, even if they are out of the media spotlight (to name one, the metal strike in Cantabria is having an unprecedented following in decades). But the dimension of the problem transcends the field of collective bargaining and must inspire comprehensive action by the public power.
The Government has fiscal instruments to produce a balanced redistribution of the costs of the crisis, sustaining consumption through transfers and cutting business margins. It can do this, for example, by raising the taxation of large corporations and energy companies that are making profits, as conservative European governments such as Italy and the United Kingdom have already done.
CC OO has shown its willingness to negotiate a broad income pact that would prevent the spiral of prices and the deflation of household consumption demand, as well as the unfair and unbalanced distribution of the costs of the price crisis, provided that this it is conjugated in the plural and is not confused with a salary devaluation agreement, as is being pretended.
In this line, CC OO understands that they should establish at least: an energy pact that attacks the real causes of inflation, fixing the inefficiencies of the electricity sector and accelerating the green transition.
A collective bargaining agreement that stops the second-round effect on prices that is already causing profit margins and that preserves the purchasing power of wages to avoid the collapse of household consumption demand and, with it, economic activity and job creation. Let’s not forget that inflation erodes, it is true that above all the pockets of those who have fewer resources, but it erodes all pockets. It is not just a matter of protecting situations of severe poverty, but of the combined income of the popular classes, which are millions of workers and pensioners.
A tax pact. This crisis does not come out of lowering taxes, not even temporarily, but rather on the contrary, closing the gap in the fiscal contribution that Spain has with Europe and that explains the permanent structural public deficit (-68,000 million are not collected annually). With 118% of GDP in public debt accumulated after the bank rescue and the pandemic, not assuming that necessary fiscal co-responsibility means transferring the cost of current fiscal inaction to future generations. There is no intergenerational struggle between active workers and pensioners; In any case, there will be a struggle between those who do not assume the fiscal normalization of Spain with respect to the eurozone, and the victims of this policy, that is, those who currently suffer cuts and privatization of public services, and/or those who assume the excess of future debt. .
And, finally, a pact is necessary on rental income for homes and premises for the development of the business activity of SMEs. That it avoid excessive increases in rents and that it lay the foundations to place them at levels consistent with the salaries paid, avoiding the extraction of rents, particularly from young people.
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