BBVA Research warns of a "worrying" underlying inflation still at 4% in 2023

07/14/2022

Updated at 8:56 p.m.

All the lights are now on inflation. BBVA Research warned yesterday about price escalation suffered by Spain and emphasized that this problem will continue to be entrenched next year as well. The institution forecasts that the variation in the CPI will remain high, reaching almost 8% on average during 2022 and 3% in 2023. And it adds: “Even more worrying may be the trend of the underlying, which could reach 5% on average this year and 4% the next.”

For the bank's research service, "the evolution going forward will depend on several factors in international markets, such as the impact of the invasion of Ukraine on the price of raw materials or the continuation of problems in supply chains. However, the effect that the behavior of business margins, the result of collective bargaining and the impact of public policies will be decisive. That is why he urges the Government, workers and businessmen to make decisions that help distribute the blow of inflation and prevent it from perpetuating itself, "which would increase the risk of recession." In other words, that the Executive and the social agents reach the long-awaited income pact to avoid fueling an inflationary spiral.

Thus, BBVA Research acknowledges that the rise in prices "continues to surprise on the upside, and is no longer limited to a few components of the CPI." The underlying, which includes 82% of the basket of household goods and services, "could rise even more and average almost 6% during the second half of the year," it warns in its latest report.

In terms of economic growth, the news is not good either, compared to the moderate optimism that existed at the beginning of the year. The war in Ukraine and the scourge of inflation derail a full recovery in the short term. «The BBVA studies service has revised downwards its forecasts for the growth of Spanish GDP for 2023, from 3.3% to 1.8%, although it maintains the growth forecast for 2022 at 4.1%. The reasons include the scarcity of some raw materials, the increase in their price and the recent translation that has been observed of this increase in production costs towards inflation, as well as the expected rebound in the financial burden of companies and families as that the ECB advances in the withdrawal of monetary stimuli”, indicates the firm.

Likewise, the institution maintains that family spending has been negatively affected by the increase in the price of raw materials and intermediate goods, and particularly fuel and electricity, which have not fallen as expected by the Government and despite the measures adopted public.

Beyond the macroeconomic forecasts, BBVA Research took advantage of the occasion to launch a dart at the Government for the measures adopted; specifically, due to tax increases on energy and banking. The organization considers that "it makes no sense to penalize specific sectors, such as the banking system, which does not generate negative externalities in the rest of the economy, but quite the opposite: it facilitates the allocation of productive resources to the most dynamic and fastest growing sectors ».

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