Far from easing, inflationary pressure continues to punish the economy and Spanish households. The CPI soared 1.5 points in June, closing at a year-on-year rate of 10.2%, according to the INE’s leading indicator.
It is the highest inflation in 37 years, since 1985, surpassing both the figure of 8.7% registered in May and the previous maximum in March, 9.8%. Gasoline and food products were responsible for the rise in prices, indicates the INE that, as it is a first estimate, does not account for the composition of the rise in prices. Inflation, in any case, continues to filter through to the economy as a whole.
Thus, core inflation, which does not take into account the most volatile products, such as fuel or food, is already at a year-on-year rate of 5.5%, after rising six tenths this month. It is maximum since 1993.
Prices began to climb in Spain at the turn of the summer of 2021, mainly driven by the price of energy, with which the average annual CPI closed last year at 3.1% after having been negative in the year .
But what seemed like a very short-term increase whose effects would disappear in the spring, according to the first calculations by analysts, has turned into a real nightmare for the shopping basket, due to the effects of the war in Ukraine, which seems to be becoming chronic, accumulating already more than five months.
The tsunami to which the prices of the products in the shopping basket are being subjected is also taking a heavy toll on all citizens, which is reflected through a clear loss of purchasing power. With the same money you can buy fewer things. This fall in purchasing power is being felt especially in salary income and in the savings of families and companies.
A quantifiable approximation of the money that this impact of the inflationary escalation could have on said income, could be around 110,000 million euros of reduction in the purchasing power of salaries and deposits.
The first thing that must be specified to make this calculation is how much prices have risen and for this, the most appropriate thing is to take not only the data for the month, in this case June 10.2%, but also determine how much prices have risen on average in the last twelve months. This would yield an average increase in the CPI of 6.5% between July 2021 and June 2022.
Once this issue has been calculated, the wage income data included in the data from the Quarterly National Accounts, which is also prepared by the INE, and which show that the country’s annual wage bill amounts to around 660,000 million euros, are taken. .
Bearing in mind that the average salary increase agreed in collective agreements up to now is 2.42% for 6 million employees so far this year, it could be said that these workers, according to the average inflation of the last twelve months (6, 5%) are losing 4.1 points of purchasing power and another 12 million have not yet experienced any salary increase. All this leads to a loss of purchasing power of the order of 35,000 million euros. The next account is simpler.
Spain has little more than a billion euros in savings deposited in current accounts. This money is practically not paid, so the impact of 6.5% would be complete, reducing an approximate amount of 65,000 million euros of the purchasing power of the savings of the Spanish.
Within the monetary impact of the inflationary escalation is also the increase in the cost of the pension payroll, whose revaluation according to the average annual CPI, in this case of November 2022, is guaranteed by law.
If this is fulfilled, it will ensure that pensioners do not lose purchasing power despite the fact that prices continue to run wild, however, the bill for the public coffers of this revaluation could rise to an additional 9,800 million if the average annual CPI remained at 6.5% of the last twelve months.
The rise in prices in 2021 that ended at 6.5% meant a cold increase in personal income tax of 4,110 million euros, 199 euros more per taxpayer.
The data published by the INE is the highest since April 1985. 37 years ago, the problem of inflation was circumscribed internally. The Spanish economy closed that year a crucial stage for history.
On June 12, 1985, the accession treaty to the European Economic Community was signed, the embryo of the current European Union, and this logically had some tolls that were manifested through a rise in prices, but it also allowed for high economic growth and an improvement in the distribution of wealth.
The geopolitical situation was very different. President Ronal Reagan was sworn in in January of that year and in the former Soviet Union Mikhail Gorbachev became president. Those were the times when the United States and Russia understood each other and began negotiations on nuclear disarmament after the cold war.