Wednesday, August 17

Inflation at 29-year highs threatens workers, savers and budgets


The price escalation continues unstoppable. The inflation rose 1.5 points in October, raising the year-on-year rate to 5.5 percent, the highest in 29 years (since September 1992).

Behind this spike in inflation there is the rising cost of electricity and, to a lesser extent, fuel and lubricants for personal vehicles, which in October of last year became cheaper, point out from the National Institute of Statistics (INE).

The rise in the CPI will have a negative impact on the recovery of the Spanish economy since it will affect savers, workers, who will see how they lose purchasing power, and the State accounts, since it will force pensioners and civil servants to compensate for this deviation.

Impact on savers

Prices, which increased by 2 percent between September and October this year (the highest in almost 36 years), it will negatively impact savers.

The Spaniards have saved in deposits close to trillion euros after rebounding by 700 million in September.

With an average return of 0.01 percent, the most conservative savers are losing with their investments, since the real return, the result of the nominal return minus the CPI is negative (practically -5.5 percent).

Loss of purchasing power of workers

Also this rise in prices has a negative impact on wage earners.

According the latest data on the salary increase agreed by agreement this year, the rise is 1.5 percent in August.

This means that the 5.3 million workers affected would be losing four points of purchasing power with this rise in prices.

Impact on budgets and tax increases

The rise in inflation will have a significant impact on the State Budgets.

To begin with, the price escalation could raise the pension expenditure estimated in the 2022 budget at around 3,500 million euros.

Thus, if inflation rises more than estimated, pension spending could rise by about 1,500 million in 2022, to which would have to be added another 2,000 million for the compensation of pensions in 2021.

To this should be added also the deviation that it would also suppose to compensate public workers.

The impact could amount to around 12,000 million euros, which would force the Executive to raise taxes to compensate for this decline.

The ECB will remain on standby

The inflation data in Spain It has been known the same day that the European Central Bank (ECB) holds its monthly meeting.

Changes in its monetary policy are not expected, but the ground will be prepared for the December meeting where the agency will announce the reduction in the volume of purchases, although it will keep the PEPP unchanged.

It will also maintain its foward guiance despite the fact that the hawks of the ECB, worried about a more persistent inflation over time, want to advance the rate hike to December 2022.



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