The industry transfers most of the record costs for energy and imports to the consumer

Imports from Spain (everything that is bought abroad) became 25% more expensive in the first quarter, compared to the same period of the previous year, according to the Fedea analysis center. a climb which means that both the industry and the services sector are suffering record costs, as highlighted by S&P Global, in the April reports of its advanced PMI activity indicators, adding "this shock" to the sharp rise in energy prices -especially since Russia began the invasion of Ukraine at the end of February-.

These same S&P Global reports indicate that companies are transferring most of these costs to consumers at record highs, which have even forced the temporary closure of some production plants, or the delay of works or projects, in the most critical situations. "Manufacturers raise their prices at a record rate as costs skyrocket (see graph)," says the document that S&P Global dedicates to the industry.

"Cost pressure remained high as high energy bills [...] affected a variety of companies throughout the tertiary sector, which in turn led to another historically marked increase in sales prices", adds, on the other hand, the report of the debt rating agency that focuses on the activity of services in Spain in April.

"The level of input orders [bienes intermedios que se usan para fabricar otros productos u ofrecer un servicio] It rose after declining in March, but did so only marginally as some companies were deterred by high prices. However, the stocks [almacenamiento] of inputs continued to increase, and did so at one of the fastest rates on record, as companies continued to implement safety stock policies," S&P Global stresses.

Meanwhile, the pressure on world trade supply chains remained strong in April, and delivery times for industrial goods "extended at a historically marked pace," the agency continues. "Businesses attributed the delays to the impact of the recent transport strike, global product shortages, the war in Ukraine and the new COVID lockdowns in China. However, the magnitude of the delays was among the lowest observed in the last 12 months," he concludes.

These conclusions, reflected in inflation of 9.8% in Marcha record of 1985, and 8.4% in April -with an acceleration of 4.4% if energy and unprocessed food are excluded, a maximum of 1995-, would negate price competition between companies, which precisely different experts come warning that it must be monitored by the authorities.

On the other hand, these analyzes do not go into whether the increases are also being seen in wages. But, "at the moment, there are no clear indications that this is happening," explains Ángel de la Fuente, executive director of the Applied Economics Studies Foundation (Fedea). Which means that companies are defending their profit margins (the ability to profit from revenue after bearing costs, including employee compensation) in the current extraordinary situation.

The economist himself warns that "an important risk is that the increases in consumer prices are transmitted to wages, thus initiating an inflationary spiral that it would tend to feed itself".

Although the loss of purchasing power and uncertainty has already been shown in the economic growth data for the first quarter, recently published by the National Institute of Statistics (INE). Household spending suffered a contraction of 3.7% between January and March compared to the fourth quarter of 2021, according to the detail of the advanced GDP data.

In this context, it is more delicate and worrying the failure of negotiations between employers and unions about the rent agreement, trying to spread the damage of inflation between companies and workers with agreements for multi-year salary increases, which in two or three years would mitigate the loss of ability to consume.

"The most important channel of transmission of the economic effects of the crisis in Ukraine to other countries has been, so far, the strong increase in prices on international markets for energy and other essential raw materials, such as cereals and certain metals. ", explains Ángel de la Fuente.

"Since both Spain and the vast majority of European countries are large net importers of energy and raw materials, the rise in their prices has an important macroeconomic effect", continues the Fedea economist.

De la Fuente provides two interesting calculations. The first, on the 25% increase in import prices from January to March 2022, compared to the first quarter of 2021. And the second, on the direct and immediate impact "of such a disturbance on real income, before companies and families can react to it by adjusting the quantities of imported goods they consume or use as intermediate goods".

"In principle, therefore, we are talking about the potential impact on income of a rise in import prices, and not its final impact, which will also depend on the reaction of economic agents and the policies adopted by the Government. ", he details, and states that the price shock accumulated in recent quarters would be very considerable, "standing around 7 points of GDP [potenciales]".

"Since the economic agents will look for a way to minimize the damage suffered by each one, it is expected that the final effect will be less than the initial shock", he clarifies. It doesn't help, yes. the depreciation of the eurowhich makes imports even more expensive through the exchange rate.

Among the ways to alleviate the coup, the Government has recently approved a temporary shock plan, until June. And Ángel de la Fuente considers that if it is renewed, it should focus on concrete measures for the most electro-intensive industries (metallurgy, transport, ceramics...) and on the most vulnerable families. "Given that general rebates on fuel or tax cuts they are inefficient".

In the last weeks, all big industry has come out in support of the third vice-president of the Government, Teresa Ribera, and from the top to electricity generation with gas, but they demand that the minister force the electric companies to auction cheap energy. This same Monday, the European Commission has given the go-ahead to the limit in Spain and Portugal.

It is temporary, for 12 months, it will not be 30 euros as requested by Madrid and Lisbon, but 50 euros on average, but it supposes the implementation of a measure that will reduce the electricity bill by putting a cap on the price of gas so that its impact on the electricity bill is less. In addition, the Iberian Peninsula will be the only place in the European Union where it is put into practice.

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