Inflation of 1.8% in the month of June, estimated this Wednesday by the National Institute of Statistics (INE), increases the annual rate to 10.2%, which is bad news and reveals the limits of the measures adopted so far by the Government of Pedro Sanchez to cope with the rising cost of living. It indicates that the purchasing power of Spaniards has deteriorated both in one month and throughout the year 2018. This deterioration constitutes, therefore, a major threat to economic stability, and it will have a profound impact on the standard of living of all social sectors, particularly the most vulnerable. On the other hand, as history has shown, it also constitutes a danger to the health of our democratic institutions.
What can be done, pending the decisions of the European Central Bank about interest rates? Knowing that they will not be able to be as forceful as one might think at another juncture, if one does not want to provoke the dreaded stagflation. We believe that, when the INE has the final data for June, the Government should examine in which sectors there has been greater inflationary pressure. It could happen that, in some cases, related to food, beverages and restaurants, the aid provided has not served to control prices, but rather the opposite.
The ills of the Spanish economy have to do with the distrust of its actors. And in such an adverse context, confidence can only be restored if the main political forces reach an agreement. Supporting an income pact, as was done 45 years ago, when inflation reached 23% and threatened to topple Spain’s fragile democracy. Times are not the same, but as we have seen at the NATO summit, Europe is facing a war that could go on for a long time. And wars have always required state agreements to deal with their consequences. As much as it is a more general phenomenon, we cannot resign ourselves to such inflation. Even knowing that its root causes lie in the war in Ukraine unleashed by Vladimir Putin, no country that aspires to welfare and social cohesion you can sit idly by. Nor is it an excuse to think that nothing can be done since monetary policy does not depend on governments.
The measures adopted up to now to palliate the deterioration of the lowest incomes may seem opportune but they prove insufficient. Any attempt to combat inequality is in the water if inflation grows at such a crazy rate. Compensating for the rise in fuel prices, helping public transport users and approving discounts for the most disadvantaged incomes are well-intentioned decisions, but they lose their effectiveness as soon as inflation passes double digits. The cap on the cost of gas adopted by Spain and Portugal in the framework of the so-called Iberian exception also seemed a timely measure, and it is likely that the INE data would have been even worse had it not been adopted. However, the fact that core inflation –that which does not take into account energy and fresh food– has increased by 5.5% indicates that government action has to go further. With more precise surgical measures, aimed at the most inflationary sectors, and with a proposal for a state pact with all forces.