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Constant protests against prices

  Surprisingly, neither inflation nor the invasion of Ukraine has dented the growth forecast for the Spanish economy. In January…

By admin , in news , at May 11, 2022


Surprisingly, neither inflation nor the invasion of Ukraine has dented the growth forecast for the Spanish economy. In January this year, the International Monetary Fund has forecast a growth of 4.9% of our GDP for 2022. Neither the invasion of Ukraine nor the year-on-year inflation figures (9.8 and 8.4%, respectively) published in March and April are available. The government’s economic forecasts sent to the European Commission prevented it from falling below 4.3% for the current year.

The first conclusion that can be drawn is that the ghost of stagflation (a combination of periods of economic stagnation and sharp rise in prices) is terrifying. If we add to this that there are more than twenty million compatriots on Social Security, inflation remains the main macroeconomic problem. In order for the price growth curve to bend, it must be kept in mind that it responds to two very different causes and for this reason, they require different measures.

Part of the general increase in prices is imported; This comes from the price of natural gas that Spain buys from other countries and which marks the price of electricity. It also depends on the price of the oil which we also import and which behaves (coupled) similarly to the gas. To this “imported” part of inflation should be added the increase in the price of raw materials and the extraordinary increase in the cost of sea freight. An incomplete indicator to help us know how much prices would rise if we discounted the price of energy is to use the core inflation figure, which calculates the behavior of these prices and the behavior of food. also does not include increase in the price of fertilizers). This data tells us that inflation would have remained at 4.4% between April 2021 and April this year if the energy and food impacts were ignored. Little can be done to curb this component of inflation, not even like a shortcut by the government to consider the cost of a liter of fuel at 20 cents. Only improvements in energy efficiency make it possible to reduce this component of price increases, and these improvements are not achieved quickly.

But, denying economic stagnation, almost half of the rise in prices is due to demand pressures and the withering recipe against this disease is to make access to credit more expensive, i.e. raising interest rates. The first firm step has been taken by the US Federal Reserve (FED). The Fed had announced six rounds of increase in the official money interest rate for 2022 to +0.25% per round; Now its size has doubled. These changes are not instantaneous. Central banks know – including the Fed – that a fundamental part of the effectiveness of their measures lies in their credibility, that is, if they announce that the increase is going to be +0.25%, they can’t increase twice as much in the end. Huh.

For Spain, most experts accept a hike in interest rates before the summer. Thirteen out of twenty two investment fund managers consulted cotizalia To create a market sentiment index, he believes rates in the euro area will rise before the summer. This is very different from being managed by the European Central Bank (ECB), which was prepared to keep rates at zero even before the invasion of Ukraine, frustrated by the slow pace of economic recovery.

In Spain, demand pressure was strong at the end of 2021. Bank of Spain measures this through a very reliable indicator based on purchase operations at Point of Sale Terminals (POS). Data for the first quarter of 2022 will be known soon, but POS companies grew by 16.69 and 24.74%, respectively, in the last two quarters of last year, although it should be noted that the last quarter included Christmas shopping. This means that Spanish families still had “damaged” savings from the time of imprisonment. This savings continued to flow into the POS.

However, household spending decreased by 3.7% between January and March compared to the fourth quarter of 2021; The data is from the National Institute of Statistics (INE). Despite this, the reduction in spending was not enough to prevent a very strong increase in inflation, therefore not enough to deter the ECB from a decisive increase in interest rates. This will make it very difficult for banks to be willing to lend at fixed interest rates. The normal operations up to a month ago that allowed getting seven-year loans at a fixed 1.3% are now almost impossible. In short, demand-driven inflation is strong and central banks are set to stave off it as they were before printing banknotes to buy public debt as an antidote to the crisis.

There is worry and dissatisfaction. When experience is not retained, childhood is eternal. According to those who went out to protest, they would be citizens legitimately claiming their rights or populists managing popular discontent. Manuel Diaz Castillo wrote in Postmodernia that “whoever dominates the guidelines governing language, who creates a language that is accepted without conditions, will win.” A great truth, but that’s another story.

  • Jose Manuel Casino He is Professor of Applied Economics at the University of Seville and an academic at the Autonomous University of Chile.