The record of core inflation at 6.4% marks a starting point for wage increases

The record for core inflation in August at 6.4%, compared to the same month in 2021, marks a starting point for salary increases in the face of the strong loss of purchasing power suffered by households in the current energy crisis, exacerbated for the Russian invasion of Ukraine.

The maximum of the CPI (Consumer Price Index) without including energy or unprocessed food, the elements whose prices are considered more volatile and that may fall rapidly in the coming months, give a reference to the dimension of the crisis and its strong impact on the purchasing power of families.

The overall CPI fell four tenths this last monthup to 10.4% year-on-year from the maximum of 1984 of 10.8%, due to the fall in fuels and despite the record electricity bill.

On the contrary, the core CPI, which offers a more structural view of price increases, increased three tenths, to 6.4%, and reflects greater persistence of inflation and that it has spread to the entire basket of goods and services. services.

Only a handful of references serve to judge the seriousness of the situation. General inflation chains three consecutive months above 10%, with electricity that does not let up. In fact, since February itself, the IPC has not fallen below 7%. More than half of the products or services in the shopping basket according to which the INE calculates the CPI rose above 5% in August (Here are the price increases, product by product, at the end of July).

If, in addition, it is observed that wages are contained, the contagion shown by the underlying CPI, much higher than the rest of the large economies in the eurozone and also above the average for this group of countries (see graphs), "has its origin in the maintenance and increase of profit margins [la capacidad de las empresas de obtener ganancias de sus ingresos]", says Carlos Martín, director of the Economic Cabinet of Workers' Commissions (CCOO).

The average remuneration of workers in Spain hardly accumulates a rise of 2.6% in 2022, according to data from 'Sales, employment and wages in large companies and SMEs' from the Tax Agency, at the end of the second quarter. In 2021, the improvement was 3.2%, according to the same statistic.

If the wage increases agreed in the agreements this year are studied, the improvement remains at 2.56% until July, according to the latest data published by the Ministry of Labor. For the eurozone as a whole, this increase is 2.1%, at the end of the second quarter, with the forecast that average inflation will end above 8% in 2022, and up to 3.5% in 2023.

In this context, economists from practically the entire ideological spectrum are clamoring for an income pact, an agreement between companies and workers that spreads the damage of inflation with a limit on profit margins and multi-year salary increases.

The most orthodox experts of the current liberal paradigm warn of the risk of a spiral of prices and wages. A threat that presupposes a feedback process of salary increases in pursuit of unattainable inflation.

The most heterodox and the most social economists consider that this spiral of prices and wages is far from occurring and that "what is worrying is that the loss of purchasing power is consolidated", according to Nacho Álvarez, Secretary of State for Social Rights .

From the Ministry of Economic Affairs, which is headed by the first vice president Nadia Calviño, they assure that in order to propose salary increases "underlying inflation is taken into account, but the maximum is moderation."

For Carlos Martín "this increases the risk of consumption collapsing and recession. That the underlying takes hold is, likewise, the main danger of entrenched inflation and that a price spiral is triggered.

In a report published in June, CCOO calculates that "business profits were responsible for 106.5% of the increase in prices in the fourth quarter of last year and 83.4% in the first quarter of 2022, estimated from the GDP deflator at basic prices.

Added to the abrasive price increases is the cycle of increases in interest rates that the European Central Bank (ECB) began in July, and which it intends to continue in September and in the following months, with the aim of stopping fueling the inflation by making loans more expensive, and also mortgages.

Thus, the prescription agreed upon by the International Monetary Fund (IMF) and the central banks to combat price increases is to influence the shift towards monetary orthodoxy, whoever that fails. Gita Gopinath, the body's number two, called this Friday at the monetary policy meeting in Jackson Hole (USA) "more aggressive measures, even if that means a strong cooling of the economy and an increase in unemployment, if inflation is unexpectedly persistent".

"The surgical way to conjure it up and to deal with inflation that originates in supply, such as the European one, is not by raising interest rates —this is killing flies with cannon fire— but rather by setting maximum prices for basic goods and services such as electricity, gas , gasoline, diesel and basic food basket that avoid over profits and the advantage of some companies", comments Carlos Martín.

The requests for an income pact coincide with the negotiations on a new rise in the Interprofessional Minimum Wage (SMI), which the Minister of Labor and Second Vice President, Yolanda Díaz, indicated on Monday that should exceed 7%.

"In principle, inflation will continue to moderate in the coming months," said Nadia Calviño this Tuesday. As she insisted, the drop in the CPI in August is due “to fuels, and to the measures of the Government [como el descuento en las gasolineras, la bajada de impuestos a la electricidad o el más reciente abono gratis de Renfe, que estará vigente desde el 1 de septiembre]”.

Regarding the record of underlying inflation, the vice president assured that it is "normal" for this to happen in a crisis originating in energy prices but that has spread to the rest of the economy over the weeks, by increasing costs of companies and damage the purchasing power of households.

In this context, Calviño trusts in an improvement in salaries, and admitted that there is an ongoing negotiation for the increase in civil servants' salaries, as well as that the Executive will once again raise the Minimum Interprofessional Salary (SMI). "Although the key is to avoid an inflationary spiral," he warned.

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