The ukrainian war Y inflationlocated in Spain at an annual rate of 10.8% in July, according to the advanced indicator of the National Institute of Statistics (INE) begin to affect the consumption. This is confirmed by an analysis published by the Bank of Spain.
After a start to 2021 with great expectations after leaving behind the period of restrictions due to the pandemic, events such as the Russian invasion of Ukraine have curbed spending expectations and, especially, those of the lowest income families, with a lower liquidity cushion. One of the effects is that incomes with a lower savings capacity postpone purchases of durable goods, such as household equipment or automobiles.
The analysis, prepared by Carmen Martínez-Carrascal, from the Bank of Spain’s General Directorate of Economy and Statistics, highlights that “the unleashing of the war had a significant impact on the spending prospects of families, so that recovery trend interrupted projected nominal consumption”.
In fact, since last March, “households have revised their nominal spending plans downwards as a result of the impact of the armed conflict on their confidence and on the anticipated evolution of your income, your financial situation and your access to creditin a context of a certain correction of the high inflation rates that were anticipated in that month”.
less dynamism
In conclusion, according to the study ‘The impact of the rise in inflation and the war on the economic prospects of Spanish households’, “after the start of the war, families would be anticipating a significantly lower dynamism of its consumption in real terms“. In addition, since the gap between the anticipated advance in nominal spending and that in income has widened with respect to the beginning of the year, “households would be implicitly anticipating slightly lower savings rates“.
The data, extracted from the Consumer Expectations Survey (CES, for its acronym in English) of the European Central Bank (ECB), reveal that the rise in inflation since 2021, initially did not affect household expectations about the rates of change in prices. “However, starting in the second half of last year, this translation began to be observed, with greater intensity in short-term inflation expectations than in medium-term ones.”
Once the war in Ukraine started there has been a worsening of the prospects of households about their future financial situation. By groups of households, those experiencing liquidity problems and those with outstanding debts tend to present less positive perspectives regarding the future course of their wealth situation.
The data also confirm that the prospects for nominal spending by households in the two highest income quintiles have continued to be, as in previous months, more favorable than those of the rest. And the pattern holds when looking at spending expectations in real terms. This may be due, according to the study, to the fact that families with more income tend to be more optimistic when they have more stable income.
In turn, the level of spending of higher-income households is comparatively further from the level prior to the health crisis than in lower-income households, given that in their consumption basket the items that have been been most affected by the pandemic (in particular, those linked to activities that entail a greater degree of social interaction, such as those related to leisure, tourism and culture) and that with the end of the restrictions it can recover again. And the last factor is that they have higher savings capacity and, therefore, to palliate with part of this needs that may arise. The greater the savings capacity, the greater the ability to maintain spending.
Another element to take into account is that the war “seems to have negatively conditioned spending prospects in some specific items, as a result of the deterioration of confidence and the perception of households about their financial situation. This is the case of the spending on durable goodswhich is usually more affected by episodes of rising uncertainty, deterioration in the wealth position of families or reductions in their purchasing power”. Consumers have adjusted their expectations of spending on home equipment and in cars in recent months, and in particular since the start of the war.
Holidays, not for everyone
Related news
In contrast, the relative prospects to vacation spending they have continued to recover, in a context characterized by the virtual elimination of the restrictions associated with the pandemic. Only the lowest incomes, which are those with the least capacity to draw on surpluses and savings, have lowered their expectations.
And as for the increase in energy cost, “families with a modest cushion of liquidity have reduced spending on other goods.” In contrast, families that have a greater liquidity buffer have not substantially changed their spending levels on other items in the face of an increase in these costs and, therefore, would have temporarily reduced their savings rates to meet them.