Years ago, the most industrialized and wealthy countries stopped tracking inflation. It was an issue that seemed to have been forgotten. Even the reverse phenomenon was feared, deflationthat is, the continuous fall in the general level of prices that led to a deep crisis.
But last year, there were already signs that this variable, which devalued money and savings, was returning with similar strength to it almost forty years ago, as with the so-called second oil crisis. And the invasion of Ukraine by Vladimir Putin’s Russia, which holds oil and gas taps, among other raw materials, has exacerbated the problem, to which, among other dysfunctions, bottlenecks in the chains are added. In fact, Europe has launched savings plans in the summer to save the maximum amount of gas in the winter in the face of the possibility of stopping gas supply from Moscow, and there will be major initiatives in September.
It’s not surprising that there were concerns about prices and that moderation in its evolution in the US in July fell to 8.5% compared to 9.1% a month ago, unleashing a certain stock market enthusiasm. In Spain it is 10.8%. As Karl Otto Pöhl, former chairman of the German Bundesbank, said, “Inflation is like toothpaste: once it’s out, it’s very difficult to put it back in the tube.” The evolution of the consumer price index (CPI) has eased economic growth, at least this year, on the part of concerns and uncertainties, although the former has had an impact on the latter. One example is the lower consumption expectations, particularly of low-income families, as indicated by a recent study by the Bank of Spain and its growth projections for 2023. This is the first indication that fall and winter may be worse than before. In the first half of the year, benefiting from the boom in tourism after almost all restrictions were lifted due to Pandemic of the covid-19.
The government argues that when it updates its macroeconomic forecasts to begin preparing the General Government Budgets for 2023, the gross domestic product (GDP) will increase by 4.3%. None of the other estimates published to date are far from this estimate. The most pessimistic forecast is the General Council of Economists’ forecast, which places it at 3.9% and anticipates a decline. recession. This means two consecutive quarters of GDP declines, as in the US.
According to economists, this could be in the last quarter of this year (as the third quarter will continue the momentum provided by a very promising tourist season) and in the first quarter of next year. In fact, downside corrections are given more than 2023. Even the Central Executive placed it at 2.7%, eight-tenths lower than previously estimated. Considering the General Council of Economists to be the least optimistic with an estimate of between 1.7% and 1.8%, the average consensus of Funcas’s 19 research services’ estimates places it at around 2.5%.
Forecasts of all kinds of institutions, public and private, highlight the consumer price index (CPI), the opposite of what is in GDP for the coming year, whose evolution does not cease to correct itself upwards. stagflationthat is, economic recession combined with high prices.
One of the biggest unknowns will be the evolution of inflation, where forecasts do not stop correcting upwards. Savings Banks Foundation Funcas determined this year as 8.8%. It will cost a lot for pensionsa revision of the aid amount to the previous year’s average inflation is already in place, and each additional point of the consumer price index (CPI) represents approximately 1,800 million eurosAccording to the calculations of the Bank of Spain. The government actually spending ceiling For next year’s Budgets in a record amount of 198,221 million Euros, 19.888 million transfers to Social Security.
While officials are confident that this recession will emerge quickly, it is true that none of the current forecasts directly point to a recession that will drop by two quarters of GDP, as in the United States. In fact, the Federal Reserve, the central bank of the leading economic power, continues its policy of aggressive price increases, with two consecutive gains of 0.75 percentage points placing the price of the currency at 2.25/2.50%. The priority is the fight against inflation. In Europe, later and less aggressively, the goal is to get it back to 2%.