The myths and realities of the highest inflation in four decades

“Inflation, energy prices are the responsibility of Putin and his illegal war in Ukraine.” These were the words of the Head of Government, Pedro Sánchez, pronounced in Congress on March 9, thirteen days after the start of the Russian invasion. Again, more than three months before the start of the warIn October 2021, inflation was already above 29-year highs with 5.4%.

Of course, the Consumer Price Index (CPI) rose even higher after the first month of occupation: from 7.6% in February to 9.8% in March. and andn June, Spain hit the worst inflation rate in 37 years with 10.2%. That month was also the first month to break the double-digit barrier since April 1985.

War effects, but also pandemic

“In a very synthetic way, there are two main reasons,” explains Ernest Pons, PhD in Economics and Business Sciences and professor at the University of Barcelona (UB). First of all, Pons said, “demand shock“A process of price escalation began during 2021, related to the recovery of ordinary activity after the restrictions caused by the pandemic”. Montserrat Guillen, professor of Quantitative Methods in Economics at UB, agrees with him and states that “a rebound is expected with the resumption of activity.”

The second reason isimpact of armed conflict UkraineAdds pons. The war contributed to the increase in prices by saying that “it is not known whether there will be a shortage of supply in the winter and therefore they want their warehouses full” and also “it is preferable to close contracts now rather than wait and wait”. For the situation to improve.” According to Guillen, it could get worse.

For the doctor of economics “one of two reasons, no doubt second most important”. “It’s true that we’ve seen inflation rates rise before,” Pons said. […], but they were very moderate rates”. Guillen warns, for his part, that “only part of it can be attributed to the war in Ukraine, basically the price of grain and gas.”

fuel reduction

Among the products that most affected this price increase in Spain are: most fuels and electric, with food and soft drinksAs indicated by the latest data from the National Institute of Statistics (INE).

Gasoline and diesel prices skyrocketed as the war broke out and although it has fallen in recent weeks, it is still higher than before the start of the Russian invasion. In response, the Government approved the 20 cents per liter bonus on the price of fuel, which will eventually be extended until 31 December.

Ernest Pons”this bonus had a clear first effect at the price paid by consumers,” he warns, but with such a policy “there is always a certain margin that companies selling the product can take advantage of to raise prices.” The doctor of economics points out that this happens: depending on the study consulted, “5 or 7 cents spoken”.

However, he added that no one pointed to an increase close to 20 cents, and therefore, since these increases were less than the bonus, the citizens were noticed even with some money in their pockets. lower real impact than ‘theoretical’”. An analysis by the National Markets and Competition Commission (CNMC), published July 7, found that, in general terms, gas stations did not raise prices to take advantage of the administrator’s assistance.

gas source

The change in the position of the Pedro Sánchez Government regarding Western Sahara triggered the current situation. crisis with Algeriamain gas supplier To Spain in the midst of an energy crisis across Europe due to the war in Ukraine. In principle, Algeria guarantees supply, but while events such as the gas pipeline breakdown, which were reported and resolved on 24 July, warn, most European Union Preparing for the possible complete shutdown of the Russian gas tap.

The electricity price has broken historical records in recent months, and to counter this, the executive has approved the so-called “Iberian mechanism”, which has been in effect since June 15 to limit the price of gas and lower the price of electricity. Ernest Pons explains this, “Although there is more work to be done” and “the calculation is not easy”, the first indicates that the measure is effectiveAs in the example of an analysis published on the ‘Nada es Gratis’ portal by Professors Rafael Salas and Miguel Jerez from Complutense University and Francisco Álvarez, Doctor of Economics.

Spain is not an anomaly

In any case, it should be taken into account thatInflation levels in Spain are similar to countries around usAccording to Ernest Pons, “it has a lot to do with the fact that the causes are common and affect all these countries alike”. In June, the Harmonized Consumer Price Index (IPCA), which calculates inflation in all countries in the same way for comparison, It brought Spain (10%) closer to the European Union average (9.6%)According to Eurostat data.

How long it will take?

At the end of July, First Vice-President and Minister of Economic Affairs and Digital Transformation, Nadia Calviño, told La hora de La 1 that inflation will remain high throughout the summer, but that will start mildly in the fall.

Pons is more cautious: “No one knows how long it will take This is the period of high inflation. The Doctor of Economics suggests that “most analysts suggest that the peak of maximum inflation will occur in July or August this summer, and then the inflation rate will drop” and predict that “by the end of the year the rate will be between 7 and 7% and 8%”.

However, “forecasts are always affected by a lot of uncertainty” and that “in the current context, very high uncertainty (the conflict in Ukraine, interest rate hikes, possible economic policy measures…) is expected “normal”.