At this time of high geopolitical and economic uncertainty, no one ventures to say when the inflation escalation, but everything indicates that it will not be soon: the CPI soared in March to 9.8%, the highest rise since 1985, according to data advanced by the National Institute of Statistics (INE). Very likely, prices will continue to rise for a few more months, before reaching their peak and finally beginning to moderate. However, the longer it takes “bend the curve” (very graphic expression that refers to the waves of the pandemic and that this Wednesday recovered Pedro Sanchez to refer to the current context of high inflation), it will have worse repercussions on the economy, especially on salaries, pensions and consumption. The situation is very worrying and that the ukrainian war does not seem to be approaching a near end does not help to calm things down. the eventual interest rate hike that the European Central Bank (ECB) is considering adopting after the summer would manage to curb inflation, but at the same time it would slow down economic growth when the recovery has not been consolidated.
Although the advance data is not broken down, it is known that the rise in prices affected most of the components of the CPI, and very especially to electricity, fuels and fuels and food and non-alcoholic beverages. According to Sánchez, 73% of the bad data is explained “by the runaway price of energy and unprocessed food, all exacerbated by the war in Ukraine.” The truth, however, is that inflation was already perceived as a problem for months before the war broke out. And the fact that the Underlying inflation (which excludes the most volatile elements and, therefore, is considered more reliable) reached a not inconsiderable 3.4% in March, reflecting that the rise in prices is not limited to energy, but rather is general.
The President of the Government endorsed the mission of lowering inflation and presented in Congress his two main weapons to confront it: the shock plan to mitigate the economic effects of the war in Ukraine, approved last Tuesday, and the agreement with the European Union to cap the price of gas and decouple it from that of electricity. Indeed, measures such as applying an average reduction of 6 euros on the electricity bill and 20 cents per liter on fuel will ease the burden borne by consumers, SMEs and the self-employed, for which they are welcome, although there are doubts as to whether the duration of this plan, three months, will suffice. More effective may be the decoupling of the price of gas in the electricity market, but we will still have to wait between three and four weeks for it to come into force, a time that could be eternal. The effects of the government passivity of previous weekswhen businessmen warned of the pressure on energy prices and raw materials and demanded urgent action.
The next step will be to accelerate the negotiation between unions and employers on the new income pact that defines how the salaries in the next years. Workers have lost purchasing power and it is opportune to balance the sharp wage devaluation that has led to the rise in prices. But the risk of this running amok in a inflationary spiral forces us to find a formula that distributes the weight between the rise in wages and business profits. The social dialogue is once again decisive.