The Government has been urging trade unions and employers for months to reach a rent agreement with which to put a stop to the escalation of inflation, which has barely moderated to 10.4% in August (data advanced by Statistics) in the midst of an energy crisis aggravated by the war in Ukraine. The objective is to reach an agreement as soon as possible that allows a moderate evolution of wages and business margins, so that Spain avoids the feared second-round effects on the economy and the price spiral.
Sources from the Ministry of Economy and Digital Transformation confirm that the Executive is working with the Bank of Spain (BdE) -and with other entities that have information in this regard- to have “specific data by sectors” of the evolution of business margins in order to reach that future pact. “It is important that from now on the margins are maintained,” they specified.
Inflation has been rising steadily for more than a year. In April 2021, it exceeded for the first time the price stability target of 2% set by the European Central Bank (ECB), although the biggest acceleration was from the month of August, when the energy crisis had already broken out at the international level. The same sources recall that coinciding with this increase in the cost of living “a recovery of both general and sectoral (business) margins has been appreciated.”
From the Department led by Nadia Calviño they stress that the Government is to continue working “actively” so that the social agents can agree, especially now that the parties plan to meet throughout this month (as they promised in the meeting they held just before the summer). Although it will not be easy, unions and businessmen have already reached other more difficult agreements before, they remember in Economy. Another objective that the Ministry puts on the table is for the parties to find formulas so that the workers have “an element” of “flexible” protection depending on the behavior of the economy.
Inflation would have peaked already
In principle, the Government estimates that inflation would have already peaked in Spain -in July the annual rate of the CPI closed at 10.8%, at a maximum of thirty-eight years- and, “if there is no additional increase in costs”, inflation will continue to decline. The reason is that the CPI rate is rising less and less and that the rise in raw material prices has already been “digested”. Yes indeed, everything is conditioned to the evolution of the prices of electricity and gas. The situation in this market continues to be one of maximum tension and, in fact, it is an element that “conditions economic evolution for the coming months,” they acknowledge.
On the other hand, in a scenario of rising prices like the current one, they consider that set a shopping basket of basic products with “frozen” or capped prices -as the Second Vice President and Minister of Labor, Yolanda Díaz, proposed this week- may seem like a measure that makes sense in the short term, but in the medium and long term it could negatively affect companies and the economy. Thus, they bet on letting the competition work in the market instead of agreeing with large distributors to fix prices on certain basic products.
Spain and the ECB rate hike
Most of the inflation that Spain endures is imported, due to the evolution of energy, although in recent months and given the measures adopted by the Government to tackle the rise in electricity, gas or fuel prices, it has he has perceived how part of that upward pressure has been transferred to food and core (which excludes the most volatile components). The scenario in Spain and in the rest of the euro economies worries the European Central Bank, which announced on Thursday the largest increase in official interest rates since the creation of the euro (0.75 basis points).
The Government anticipates that the increase in the price of money have a more moderate effect on the Spanish economy, thanks to the solid position of families and companies. From Economy they value the fact that families have had a very prudent behavior in recent months, something that is reflected in their savings and in the evolution of consumption, although this has reduced the dynamism of demand. Regarding the complex challenge facing the issuer (exceeding the brakes with the rate hike and causing a recession or staying too short and failing to contain prices), the Executive trusts that the entity will know how to find that balance.
The entity chaired by Christine Lagarde has updated its quarterly macroeconomic projections and in them he reflects, although without mentioning it explicitly, that the eurozone economy could be affected by stagflation or stagnation of the economy with high price increases. Specifically, it has reduced to 0.9% the advance in GDP forecast for next year and has raised its inflation calculation to an average of 5.5%.