Inflation fuels inequality: it hits 30% more households with less income | Economy

A group of women wait their turn in a local Food Bank in the Orcasitas neighborhood, Madrid.
A group of women wait their turn in a local Food Bank in the Orcasitas neighborhood, Madrid.bald elm

Inflation is often compared to a silent tax that erodes purchasing power, especially when prices grow well above wages, as has been happening unstoppably in recent months. The result is that everything is more expensive, but not for everyone with the same intensity. Between January and May, the purchasing power of the poorest households has been reduced by 30% more than that of the richest. The middle classes are also suffering the blow: their savings capacity can no longer withstand the same levels of consumption.

This is one of the conclusions of the report. Inequality does not go on vacation, published this Wednesday by Oxfam Intermón, which warns about an increase in inequality. When the light seemed to be seen at the end of the tunnel of the pandemic, the war in Ukraine has dealt another blow to the economy, causing endless imbalances that are feeding on the lower classes. Now, the most pressing thing is the rise in energy prices, which despite the relief measures put in place by the Government ―such as the cap on gas, the discount on fuel and the reduction in taxation― continue to climb and they have infected the rest of the shopping cart.

Between January and May, prices rose an average of 8.1%, according to the INE, and soared 10.2% in June, the highest rise in 37 years, with underlying inflation ―which does not include energy and food, the most volatile elements― 5.5%. The consequence of these spikes is that you have to spend more to maintain the same pattern of consumption. Between January and May, the increase in prices has been 11% for the most affluent households, and 14% for the most humble. “The intense price increases affect households with lower income more intensely, since they must allocate a greater part of their limited income to those products that are more expensive, that is, electricity, gas, fuels and food”, asserts the NGO report.

It is enough to take a look at the annual variation in the prices of the different categories of goods and services: the one that includes housing and utilities – water, electricity, gas and other fuels – rose 17.5% in May compared to the same period of 2021 ―the general index was 8.7% that month―, transport 14.9%, and 11% food and non-alcoholic beverages. They are all essential products, “hardly substitutable”, that households with lower incomes consume in a greater proportion of their income and that have experienced increases of up to 30% depending on the month. On the other hand, the increase in prices for restaurants and hotels or leisure and culture was 6.3% and 2.3%, respectively, in May. “A household can give up going on vacation, but it can hardly give up turning on the heating during the winter or buying fresh fruit and vegetables if it wants to maintain a minimally healthy diet,” the report abounds.

The slab that represents the increase in the cost of electricity, gas and fuel stands out. The decile with the lowest income ―less than 6,600 euros― allocated in the first quarter of the year almost 35% of their income, on average, to pay energy bills, more than double that of the previous year ―10.7% in the case of the decile with the highest income, which has also registered a very intense rebound. Moreover, close to one in five households that make up the poorest segment used more than half of their income to pay the energy bill, and the blow seems to have struck many households with higher incomes as well.

Inflation also reduces the ability to save, and not just for the poorest households. “If before the price increase almost half of Spanish households could save (households within the five deciles with the highest income), after the price increase, we estimate that only three out of ten households can do so”, summarizes the report, which points out how this data could translate into an increase in the gap between rich and poor.

emergency response

Both the pandemic and the energy crisis are vehemently hitting some and benefiting others: billionaires have increased since the start of the health crisis, and certain economic sectors have fattened their profits. Among them are the energy companies: the profits of the four largest Spanish companies grew jointly by 34% between 2020 and 2021. For this reason, Oxfam proposes to tax the so-called profits that fell from the sky, a measure that the Government has promised to implement, and apply it also to other sectors with record profits, such as pharmaceuticals or technology.

This is one of the 12 measures recommended by the NGO to deal with the emergency and protect the most vulnerable. It also suggests, in the short term, improving access to and amount of the minimum vital income and solvency support mechanisms for SMEs and the self-employed, emphasizing the energy transition. The other measures cover different aspects, from the improvement of social benefits to an income policy that prioritizes lower salaries, the promotion of employment, the increase in the minimum wage or the improvement of care, integration and asylum policies. Likewise, it suggests fiscal changes such as the harmonization of the wealth tax or the inclusion of a new income tax bracket for high incomes.

“Inflation does understand social classes. The impact of the price increase is fundamentally differential, and this is important to try to think about what kind of measures we need”, says Ernesto García, coordinator of Just Recovery of Oxfam’s Zero Inequality Program. “We believe that measures must be developed both in the short and medium term, because it is not just a question of resisting the impact but of advancing in a fairer and more sustainable model.”

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