The Bank of Spain asks not to raise pensions and wages according to the CPI in the face of the inflationary spiral


The governor of the Bank of Spain, Pablo Hernández de Cos, has asked to avoid measures, such as automatically linking certain spending items to the evolution of the CPI, and which may end up “additionally feeding the current inflationary process” in an environment in which The supervisory body will make “a significant downward revision” of its economic growth forecasts for Spain for this year.


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During his speech before the Congressional Budget Committee on the draft General State Budgets for 2022, he explained that the Bank of Spain will not publish new macroeconomic projections until December, but has advanced that there will be a downward revision.

Although for the governor this rise in inflation is mainly due to factors of a transitory nature, it cannot be “excluded” that the increase in prices will persist in the coming months, especially linked to energy costs. At this point, he has estimated that a permanent increase of 10% in the price of electricity paid by consumers would subtract between 2 and 3 tenths of GDP after three years.

And, in this context, he has pointed out that “the longer that duration, the greater the probability that the increase in inflation will gain persistence, both because the cost increases are filtered with greater intensity to final prices and because the rise in these lead to higher wage demands. ”

But, he added, Hernández de Cos is not an “inevitable” scenario and he has introduced his recommendations there. To begin with, he added, “a generalized fiscal impulse must be avoided” that “could translate into an increase in existing bottlenecks in the most stressed sectors, which will end up filtering into prices.”

It is also important to avoid, he pointed out, the “generalized use of automatic indexation clauses in expenditure items that could additionally feed the current inflationary process.”

And he has concluded by asking companies and workers for an “equitable distribution” of the reduction in income of the national economy compared to the rest of the world that recent cost increases imply. Otherwise, he stressed, “a feedback of prices and costs could be encouraged with adverse effects on competitiveness, economic activity and the well-being of citizens.”

Forecasts downward revision

The current forecasts of the Bank of Spain project a GDP growth of 6.3% in 2021, which would decrease slightly to 5.9% in 2022. But, Hernández de Cos recalled, after these projections the INE significantly revised down its previous estimates of GDP growth in the second quarter of 2021 from 2.8% to the aforementioned 1.1%.

“A reduction of such a high magnitude implies, mechanically (…) a substantial reduction in the average GDP growth rate for 2021 and, to a lesser extent, also that of 2022”, he added.

Hernández de Cos has pointed out the risks faced by the Spanish economy and has especially highlighted the evolution of the imbalances between the supply and demand of goods and the degree of persistence of inflationary pressures.

“Prudent forecast” of tax collection

On Budgets, Hernández de Cos has indicated that the forecast of income from social contributions of the 2022 budget project is “slightly optimistic” according to the institution’s models. However, this optimism is partially offset by a “prudent forecast” of tax collection.

The governor has also indicated that the evolution of the macroeconomic environment “is subject to downside risks”, which could erode tax revenues.

Likewise, he pointed out that the settlement progress for 2021 indicates that 3,100 million euros will be collected less than budgeted, because the deviation in tax revenues (6,700 million less) has not been able to be compensated by the good performance of the quotes (3,600 million more).

The deviation in tax revenues is mainly due to the lower collection capacity of the taxes introduced this year -digital tax, financial transactions, limitation of dividend exemptions and VAT increase on sugary drinks-, as well as the lack of entry into force of taxes on non-reusable plastics and waste in landfills.

“These results show the need to estimate the effects of discretionary income measures with prudence,” the governor pointed out, especially when “there is no evidence” of the behavior of new figures.

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