Inequality also follows inflation. At least, that’s what the Bank of Spain’s reports show by pointing out that the relative weight of items in the household shopping cart is moderate, as the rise in prices is initially concentrated in food and energy. an asymmetrical social impact, causing lower-income households to actually experience a much higher price increase (1.4 percentage points) than higher-income households.
The price increase in June exceeded all expectations. Compared to the 7.2% projected by the Bank of Spain or 8.5% of Funcas, the figure developed by INE jumped to 10.2%, one of the highest since 1985. In addition, increases in other cross-industry such as transportation. As the secretary general of Cáritas said the day he presented the 2021 Report, it is causing an “unconventional” situation for many families. “This is no longer a setback, but an overflow that requires a bold response.” First of all, because the “pandemic tsunami” still fluctuates as “not everyone has managed to get out of the spiral of social exclusion”.
Several recent studies support the idea that inequality continues to rise in Spain. Thus, the 2022 World Wealth Report published by Capgemini states that both the number of rich people and the value of their assets increased in Spain in 2021, while Funcas, in another study, estimates that the percentage of poor people is the percentage of the poor. deprivation Severe material poverty has been on the rise for the third consecutive year, with the highest poverty rates being concentrated in those under the age of 18.
Along the same lines, an innovative study by Caixabank Research based on more than three million in-house payrolls and analyzed with Big Data techniques measured the evolution of wage inequality in real time during the pandemic, before and after government intervention. And the results are overwhelming: the crisis hit the lowest wages, concentrated among youth and immigrants the hardest. In traditional Gini index terms, wage inequality has risen by ten points by March 2020 to just four points, with compensatory intervention by public policy in favor of the most disadvantaged households. Currently, it has already reached pre-pandemic levels, but we are still a long way from the low wage inequality that existed before the 2008 financial crisis.
Also from the EsadeEcPol Center for Economic Policy, they analyze the evolution of income inequality in Spain over the past two decades, applying a new methodology based on distributive national accounts supported by Piketty. The results are very interesting, starting by confirming that income inequality levels with this methodology are higher than those obtained in previous studies on other data.
Thus, it turns out that the share of the top 1% in national income increased from 13% in 2007 to 17% in 2019, and that the poorest half had not yet regained their income before 2008. The study also confirms. Government action through taxes, transfers, and public services such as health and education helps reduce some of the income inequality. And this collection of taxes has remained practically constant since the 1980s, although the tax system, especially the wealth tax, has lost its phasing.
For the richest 1%, business income represents less than 35% of their income because financial capital – with lower taxation – has a greater weight on their total wealth. This shows that the current tax system makes little adjustments to income inequality, and that public redistribution is carried out above all through public expenditure.
At this point we can confirm four facts: Income inequality has increased in Spain since the financial crisis; The pandemic meant another blow that widened the gap, and now this inflation, driven by the effects of Putin’s war in Ukraine, is once again widening the gap between the poor and the rich. Also, the positive work of the State as a revenue redistribution agent is justified through public expenditure rather than tax revenue collection.
Analyze metrics
It is therefore crucial to analyze the measures taken to combat the rise in prices or at least soften their negative impact on families’ purchasing power, as seen for the first time in the National Accounts data. The quarter where the downward correction in GDP growth went hand in hand with the slowdown in household consumption.
My impression is that both governments and the ECB see this inflation as temporary and closely linked to the war. As a matter of fact, as we saw last week, all institutions agree to point to a significant disinflation process starting from the last quarter of this year and within the next year.
This explains the timid reactions of the Central Bank, which – so far – consisted of slightly moving the announced schedule for the withdrawal of public debt from July and the announcement of a 0.25 percentage point increase in official interest rates. If the hyperinflation model shown in Spain in June can be compared with what is experienced in other Eurozone countries, it cannot be ignored that the increase will be even 0.50 points higher.
Governments, including ours, are devising measures aimed at reducing the rise in some prices, particularly through tax cuts, and, above all, compensating for the incomes of the most disadvantaged. However, typical anti-inflationary measures aimed at correcting supply shocks and reducing demand, such as the income agreement, are excluded for the time being.
I do not know. However, if, as it is remembered, the situation resembles the oil shock of the late 70s of the last century, it would be appropriate to state that this crisis was dealt with by a major national, political and social pact known in Spain. Like the Moncloa Pacts. It wouldn’t be bad to repost them now, can you imagine?