Saturday, September 25

Inflation or rent extraction?

The publication of the advance CPI for August, 3.3% per year, has set off alarms in those who continue to see inflation as a real threat in this deflationary world. As those who have studied this phenomenon will know, inflation is a sustained and continuous increase in prices over time, motivated, according to purists, by an increase in the amount of money in circulation. However, something should be wrong because after huge injections of liquidity by the different central banks, inflation remained in negative records, rousing theocratics and philosophers of economic neoclassicism.

The main issue was that all this liquidity did not leave the commercial banking channel and did not flow to the final economic agents, since effective demand had remained in a coma since the introduction of the orthodox recipes in 2008, after the burst of the bubble. of private debt and the real estate sector. This decoupling between liquidity growth and inflation seems to give reason to those who argue that the speed of money circulation, key to understanding inflation, is an endogenous variable, that is, it responds to the pressure of effective demand. With this, it seems that a good part of the economic literature that continues to trust and pray that the correlation between liquidity and inflation is not broken, and therefore the role of interest rates as an adjustment variable between liquidity, inflation and investment.

Therefore, since 2008 and with the aggravation of the pandemic, some correlations and causalities have been dismantled, although their effects on the common ideology have not disappeared, since, at the minimum, as happened in August, the ghosts of rises return of interest rates to control a variable, inflation, which continues at minimum rates, if we discount the phenomenon of extraction of income from electricity and real estate on consumers, especially the most vulnerable. Thus, core inflation remains at 0.7% per year, which gives an idea of ​​the magnitude of the sluggishness of activity, despite the offsetting boost that is taking place in GDP after the post-pandemic economic opening.

In this sense, it is convenient to clarify what is happening in Spain, but also at an international level, with some products and services that are generating temporary spikes in national and international price indices. Specifically, and in the absence of the final data for August that will be known on September 17, it is known that in Spain the rise of 3.3% in the general CPI has its origin basically in the rise in electricity, the oligopoly without empathy, fuels, which also affect electricity, and tourist services, whose managers have decided to give their customers a notable blow to their customers, in payment for the closures and ERTES that we have all paid for. If we add to this the permanent inflation in the rental of housing, we already have together all the rentiers who are taking advantage of the government’s mellifluous attitude to take advantage of its dominant position, generating a historical spiral of profits, while the government advocates for empathy and laissez faire, so typical of submissive rulers towards this type of oligopolies.

In sum, what we are suffering is an income appropriation, clearer in relative terms among the pockets of the most vulnerable incomes, by protected sectors that operate in a regime of imperfect competition, if not in oligopolies, with a power of negotiation much higher than that of the other players and that they are protected by governments and the EU itself. The speeches about the impossibility of intervention in the real estate or electricity markets are as false as they are interested. There are de facto intervened markets, such as the French nuclear market, or real estate in some parts of Germany or France, thanks to the will of their managers. This favors lower inflation of real estate assets in Germany or in the electricity market in France.

The question that arises now is whether these spikes are temporary or permanent phenomena, since this could lead to general indices being installed in dangerous registers for those who continue to believe in inflation as a monetary phenomenon, and which could put pressure on the authorities. monetary policies to modify the interest rate policy. It is hard to believe that the ECB, after its modification in its inflation objectives that try to converge towards the postulates of the FED, are left clouded by siren songs in relation to the overheating of an economy like the European one, where unemployment rates are still high. abnormally high. It should not be forgotten that, for example, Spain has an unemployment rate of 15%, which indicates that there is room for fiscal expansion, without touching rates.

Therefore, these transitory episodes can only be explained as extractive income phenomena that try to appropriate a large part of the income of workers and pensioners who are suffering a serious cut in purchasing power, further impoverishing a very vulnerable sector that lacks income. effective protection, given the failure of the so-called social bonus and the slowness of the processing of the minimum vital income.

The most important thing is that these transitory peaks can be compensated with an increase in income in an amount sufficient to alleviate the burdens of the oligopolies and the rentiers, true architects of the suffering consented to by the Spanish and community executives.

In summary, there is no reason to modify the Community monetary policy due to the impulses of the prices of electricity and fuels, the components of which have more to do with perverse price formation mechanisms in the case of electricity, collusion in fuel prices and the greed of the owners of rental housing.

As a result, there are coming times of increased public spending on pensions and some fictitious relief in public debt ratios, and also wage demands on the part of workers, especially those who live on the meager interprofessional minimum wage. We can only hope that the social partners know how to value this situation and act responsibly by raising the SMI sufficiently so that, little by little, we can catch up with our more solvent European counterparts. Of course, we must avoid being abducted by the enemies of wage increases, including the Bank of Spain, who continue to be intellectually shipwrecked trying to convince us of the negative of the rise in the SMI.

Finally, a crucial reform is pending. The work of the Competition Market in its sanctioning aspect must cease to be obstructed and bypassed by the Supreme authorities which, systematically, annul the high fines imposed on the practices of cartels, oligopolies and the extraction of abusive rents. Without this, the laughter of the large construction companies, real estate electricity companies will continue to sound in the Boards of Directors and in the offices of the ministers of the most progressive government in history.

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