The supply mismatch of products due to the end of the pandemic, aggravated by the ukrainian war that is deglobalizing the world, has caused a large increase in inflation, not seen since the 70s of the last century. And the expectations of all economies have changed. To worst.
When in January 2021 Biden assumed the presidency, his message was that it was necessary to inject moneyor to the economy -with social and infrastructure programs- to ensure growth and a fairer America. For months, and increasingly, he has stated that curb inflation, which is at 8.3%, is the great priority because it distorts the economy and reduces the purchasing power of families. And it encourages the Federal Reserve (the American central bank) to, to do so, raise interest rates. Even if it hurts growth.
In the euro zone as a whole, the phenomenon is similar, although not as intense as average inflation is 7.4% (1.6% a year ago). And Christine Lagarde, the president of the ECB, has already said that this summer it is going to raise rates and stop buying public debt. It is inevitable because the inflation target of the central banks, the rate at which they believe the economy is not going off the rails, is 2%, far exceeded and it does not seem that – contrary to expectations until the invasion of Ukraine – it will be reduced quickly.
In Spain the problem is more serious because inflation is higher than in the EU. In May the CPI rose to 8.7%, 0.4 points more than in April and six points more than a year ago. And the restrictive measures of the ECB -which will stop growth- are going to touch us more. That the ECB stops buying public debt (which finances the deficit of the states) will create more problems for the most indebted countries: Greece, Italy, Portugal and Spain. Furthermore, reducing growth when unemployment is 2.9% (Germany), 3.6% (United States) or 6.8% (average for the euro zone) is one thing. In contrast, in Spain, where unemployment, although falling, is still at 13.5%, it is much more harmful.
Perhaps even more serious. Inflation punishes all incomes, but even more so those of the less favored classes than spend on obligatory basic necessities. If we add to this an unemployment rate that doubles the European average, the social unrest caused by inflation can be much greater. That is why two things about the Government are surprising. One that he has not adapted his speech that, with certain but partial data, is guilty of triumphalism. Then, that it does not take -apart from the Iberian exception for the price of electricity that is not yet in force- stronger measures.
In addition, the CPI no longer rises only due to gas or oil, since the Underlying inflation (no power) is also firing. A year ago it was at 0.2% and in May it rose to 4.9%, the highest rate since 1995. If the underlying goes haywire it will be difficult not to transfer to wages and do not generate inflationary spiral.
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And the loss of purchasing power of families – Macron’s great electoral obsession, despite the fact that France has an inflation of 5.4% – can get fat the protest vote against the system. Today, with Podemos in the Government, to Vox.
Sánchez and Calviño, perhaps paralyzed by the ‘Pegasus’ scandal, they react late in the face of very worrying inflation. Hiding your head, like the ostrich, is not the appropriate response to unforeseen contingencies. The longer they take to assume the new realities, the more damaging the consequences will be.