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Uncertainty threatens the end of the year and a 2023 in which inflation can drag down salaries, while waiting to approve the Budgets
After hearing for weeks that we will have a hot fall, the calendar has put the economy in its place. And it has done so after a record summer. The first summer period without restrictions due to the coronavirus has been plagued by international tourists, Spaniards wishing to enjoy their vacations, rising expenses and, in general, an economic party that has translated into good employment data, economic growth and tax collection. But the September slope is already here. And not just going back to school, which represents an average cost of 400 euros per family with school-age children. The rise in prices has spread to each and every one of the facets of life, beyond energy, the origin of the problem. The new course (school, work, political and above all economic) begins with more uncertainties than certainties. And the few that there are, look down.
The inflection point
After approving the first package of measures to cushion the effects of the war in Ukraine and the already rampant inflation in March, the government hoped that April would become the “turning point” month. That is to say, the moment in which inflation could moderate its rise compared to the 9.8% registered that month. April took a breather, with 8.3%. But in the end it was just a mirage. Since then, prices have not stopped increasing year-on-year, far exceeding 10% in August. Until when? Nobody knows. There are “signs”, as highlighted in the Ministry of Economy. Signs that point to a drop in prices such as that of metal raw materials in international markets, as well as that of numerous agricultural products, whose cost was overwhelmed as soon as the Russian invasion began. The cost of maritime transport also fell, completely stressed in the first half of the year. And some material bottlenecks such as microchips for cars are being undone. But very little by little.
Oil also makes up a part of these moderate prices. After breaching the $120 a barrel barrier for Brent during the early days of the war, crude is now trading in the 90s on recession fears. Just at the beginning of the summer it picked up again and led to fuel prices being well above two euros per litre. There was even speculation that it could reach three euros per liter, an unprecedented figure in Spain. It was not so. Oil has been relaxing in the last weeks of summer –not without its corresponding ups and downs–, always pending the decisions of the OPEC cartel, the world crude oil producers. September has started with its price below 100 dollars. Good sign for inflation. But while the price of gasoline continues to fall (1.75 euros per liter), that of diesel has shot up to above 1.90 euros. The reason? Much of the diesel consumed in Europe comes from Russia. And the refineries do not give more than themselves.
Electricity doesn’t let up either. Despite the Iberian cap, which prevents a 15% higher increase in electricity, costs continue to skyrocket. The price of gas in the international market suffers from the tension of Russia and has come to exceed 340 euros/Mwh in August. A year ago it was listed at 30. Almost ten times less.
The problem for families and companies is that this sign of energy has already been transferred to the entire shopping basket. Core inflation, without these energy products or unprocessed foods, is well over 6% and shows no signs of letting up. It is the worst possible tax for families and businesses, who see their purchasing power drastically diminished. Tackling this situation will be one of the Executive’s challenges before the end of the year.
How much is the climb
The three agents of social dialogue (Government, unions and employers) have assumed that workers’ salaries have to be increased so as not to fall behind in the face of inflation. The question is to what extent they should do it. 10%, the rate at which prices have risen so far? 5%? A few tenths? The parties have yet to negotiate the rent agreement that all of them usually allude to, but on which none of them makes a clear statement. Probably so as not to cloud the negotiation itself. Until now, there is only one objective data on the table: the 2.6% increase agreed in the collective agreements to date.
The final result of this increase will depend largely on what the Executive decides to do with two variables: the salary of civil servants and the minimum interprofessional salary (SMI). The economic vice president, Nadia Calviño, recently explained that the increase in the public sector must avoid an inflationary spiral. She thus suggested an increase that does not have to approach the high range of inflation, above 7% or 8%. The next few weeks will be key. Also for the SMI. The second vice president, Yolanda Díaz, will await the considerations of the committee of experts and trusts that it will be “as consensual as possible.” The Government’s commitment is to raise the minimum wage to 1,050 euros, about 50 euros more than now, to reach 60% of the average wage.
squaring the circle
The public accounts of the State constitute the cornerstone of any government action. Also in this case, given that next year is full of electoral appointments. Treasury, which is already preparing the draft, has to move to several bands. On the one hand, with economic forecasts lower than this year’s (GDP growth will not exceed 3% in any case), a decrease, therefore, in tax revenues due to lower activity; the highest expense for millionaire support plans against the effects of inflation. And all this under the commitment to continue reducing the public deficit and debt. Without counting on the parliamentary complexity to obtain the support of the usual partners in Congress to endorse the Budgets.