The OECD warns that rising prices are “undermining” family economies, and the ECB predicts worse prospects “for 2022 and beyond”
The high inflation that all countries are suffering as a result of the war in Ukraine is a matter of great concern for the OECD, which in its latest report on household income warns that per capita income fell in the first quarter of the year 1.1% in the average of the 36 countries that make up the organization, which means a lower purchasing power of families and the slowdown of the economy.
According to their data, although household income fell from January to March -coinciding with the start of the conflict-, GDP per inhabitant advanced by 0.2%. This situation is the opposite of that observed since the pandemic broke out, when family income increased (due to the savings rate), while GDP sank. The gap increased so much during the year of confinement, that the real income of households is today 2.9% higher than in January 2020 despite the fall it is experiencing in recent months, while GDP is only 1.6% higher than then.
What is happening now is that rising consumer prices are “undermining” household income, details the OECD. Moreover, if the focus is only on the countries that make up the G7, the world’s largest economies, per capita income fell 1.2% from January to March. Among them, the impact of inflation on families was particularly high in France, where resources fell by 1.9%, and in Germany, by 1.7%. But these figures have no comparison with those of Spain, where high inflation has contributed to a large drop in disposable income, specifically 4.1%, four times more than the OECD and G7 average. The only European country that surpasses us is Austria, with -5.5%.
This is not surprising, considering that Spain’s inflation rate is the highest among its European partners. The latest data from Eurostat for July indicates that on average the countries of the eurozone registered 8.9% inflation, compared to 10.8% in Spain. Also higher than that of Germany (8.5%), Italy (8.4%) or France (6.8%).
Saving, an impossible mission
And the incessant rise in prices is affecting the economic forecasts of the organizations. The European Central Bank (ECB) worsened its outlook on Thursday in its monthly bulletin by acknowledging that “inflation remains undesirably high” and announcing that it will remain very high for longer than expected. “Growth will slow down, clouding the outlook for the second half of 2022 and beyond,” the ECB assumes in its report.
The problem is that this situation comes at a time when the economy of many families and companies has not recovered from the pandemic. In fact, although Spain registered a record increase in the savings rate in 2020 and 2021 due to restrictions, it was concentrated in only one in five households, 20%, according to ECB figures. These are the few families that are now in a better position to cope with high inflation.
The agency states that during the pandemic “most households were not able to increase their savings rate, only 20% increased it and around 16% reduced it.” In addition, these households that managed to save tend to be those with the highest income level, therefore, the least affected by the rise in prices. Thus, according to the ECB, this could “limit” the positive impact of these savings on the recovery of consumption.
And if getting to save was difficult for the Spanish during the past two years of the pandemic, currently with inflation it is an almost impossible mission. The shopping basket has skyrocketed, with a large increase in the cost of basic products such as oil (56%), bread (17%), eggs (16%) or meat (10%), which places Spain with price rises higher than the European average, according to data from the Bank of Spain.