The reappearance of inflation in the global economy seems to be particularly affecting the euro countries and, more specifically, Spain. The latest data provided by the INE, dated April 28, confirm that this month the CPI place your annual variation in 8.4%a rather alarming figure, although a little more than a point and a half below the rate registered in March, which peaked at 9.8%, the highest since 1985.
Mainly, this increase is the consequence of the increase in the price of energy consumption, 80% in the case of electricity and 52% in fuels, and also in food prices as a result of the war in Ukraine and the subsequent carrier strike. Despite the decline in the CPI, the annual rate of core inflation has risen to 4.4%, the highest figure since December 1995.
In this sense, inflation caused by this imbalance between supply and demand, has strongly affected companies, whose production costs have skyrocketed well above the goods and services they sell, added to the losses generated by the decrease in the purchasing power of people. “How long current inflation lasts will depend on the interaction between continued labor market tightness and supply chain bottlenecks and the central bank’s response. However, the evolution of the conflict and its duration will also determine the impact of price growth in the rest of the year”declares Dr. Joanna Pousset, professor of Economics and Finance at the TBS Education business school in Barcelona.
In fact, in the case of industrial goods, at the end of 2021 they were 32% above the level of the previous year, and this year they have multiplied by thirty. According to a report by the Bank of Spain, 80% of the country’s companies maintain that their production costs will continue to grow in 2022.
The shock plan against the economic consequences in Spain
Standard economic theory states that inflation will spiral out of control under a protracted combination of certain monetary and fiscal policies, but whether inflation will persist depends both on the distribution of shocks across the economy and on how central banks and finance ministries react. finance.
“It is true that the upward trend in prices began due to the mismatch between supply and demand in the recovery phase after the pandemic, but the war in Europe has worsened the impact even more”, remarks Dr. Pousset. Last April, the Ministry of Economic Affairs published a statement assuring that 73% of the increase is due to the impact of the Ukrainian war conflict. From TBS Education they focus on the war offensive, which entails a first collateral effect, the increase in electricity and fuel prices, given the weight of Russia in European gas imports, with 9% going to Spain.
Consecutively, the rising energy prices it has led to strikes and transport stoppages in some sectors of Spain, exacerbating supply chain disruptions and inflation. Second, the war in Ukraine has had a strong impact on the rise in food prices, especially cereals and vegetable oils, of which Ukraine and Russia are the main producers.
“These effects will cause inflation to persist longer than expected. The impact is likely to be greater for low-income countries and emerging markets, where food and energy account for a larger share of consumption.concludes Dr. Pousset.