Government measures do not stop inflation from going above 10%

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The government claims it has taken measures to contain the progress of inflation and offset its impact on households and the most vulnerable sectors, measuring just over a single point of GDP at 15,000 million euros. take such measuresHowever, that hasn’t stopped the inflation rate from breaking the double-digit high in June, up to 10.2%Contrary to the Vice President’s estimates a few weeks ago Nadia Calvino, which was confident that the rise in prices would peak in March, when it recorded a rate of 9.8%. Inflation reached the highest level in June

It is clear that without the aid of 20 cents per liter of fuel, there is no shortage of fuel. VAT on electricity (from 21% to 10% from June 2021 and 5% from 1st July next), without reduction in two special taxes on electricity and without gas price cap If used in electricity generation, the rate of inflation will be higher. For example, INE estimates that, without the tax cut, inflation would be about one point higher (the inflation figure for May rose 8.7% to 9.6%). on constant taxes,

The chairman of the government said in a statement to the Ser channel that the growth in the CPI “shows”. seriousness of the situation European and Spanish economy”, the “appropriateness” of the measures taken by the executive to reduce the effect of prices on citizens’ pockets and the need for reforming the electricity market in Europe. The question is whether the set of sets already Only measures adopted—and others announced last Saturday, such as up to 50% off transport pass card– They will be able to deduct up to 3.5 points from the inflation rate, which without them, could be around 14% or 15%, as the prime minister said on Saturday. It is also worth asking whether the 15,000 million euros that the state will pour into the economy (in aid and tax cuts) will not add fuel to the fire and feed back the phenomenon of inflation through over-consumption.

1.-Will the government’s measures reduce inflation by 3.5 points?

Experts advised consider the reduction in inflation to 3.5 points which the government attributes to its measures being excessive. “I don’t think it will come to that, far from it,” he says. Maria Jesus FernandezFunkas Senior Economist. For him, measures against inflation”they are patches that they can reduce the rate a little, but cannot control it”; although he admits that no more can be done: “it is not in the hands of the government to stop the process of inflation when the cause is not national”. .

When inflation comes from outside and is so significant and widespread there is little “governments can do” to stop it, he agrees, pointing out Rafael DomenechHead of Economic Analysis at BBVA Research. This study service calculates five to six tenths of the lowest inflation that could be in favor of applying a gas price cap to electricity generation. VAT reduction From 10% to 5% can cut another three tenths of the power. “If anything can be done, it is to try to avoid second round effects or to adopt measures in favor of the most vulnerable groups,” he says.

In the first four months of the year alone, Spain’s energy bill abroad has increased by more than 16,000 million compared to the same period last year. “It is a penury for any economy dependent on outside supplies,” he explains. Joseph Emilio Bosco, Professor and Fedia researcher at the University of Valencia. “The only thing that can be done is to recognize that the whole country is getting poorer and see how we distribute it,” he says. An income settlement to avoid the effects of the second round –In which, in addition to companies and workers, the state and pensioners also participate – from their point of view, the only effective way to contain inflation. “There is no reason that all pension Will have to rise with IPC at this point”, says Bosca Bank of Spain opinion,

If the events of the second round are avoided, the period of high inflation will begin to decrease after one year, due to Domenech. If the maze of prices and wages is triggered, the rise in the price level will last much longer.

2.- Does injecting 15,000 million into the economy bring down inflation?

“Injecting a single point of GDP into the economy represents a very important stimulus and is going to have an impact on activity,” he explains. Joseph Emilio Bosco, However, “the magnitude is not important enough to add an inflationary effect in a context in which purchasing power is eroding so poorly,” he says. Maria Jesus Fernandez, “Aid focused on the most vulnerable groups is welcome. They can help avoid more social conflict, with very limited impact on inflation,” he says. Domènech,

“The problem is that some measures are very poorly focused,” Fernandez says. In this sense the three economists agree to point out whose shortcomings? Help of 20 cents per liter Normalized fuel price for all consumers, which came into effect from April 1 and has been extended till December 31. This is one of the most costly measures taken by the government. For the second semester alone, a budgetary impact of 4,038 million is estimated, which will benefit any consumer, regardless of their income level or their origin (tourists, included).

“If the price of fuel drops below 20 cents, its consumption is boosted and the budgeted cost of the measurement increases”, Domnecht went on to describe. vicious circle in which such a remedy is implicated. Yet another example: “A cap is placed on the price of gas; the price of electricity falls; this encourages increased demand; as a result, more combined cycle energy is required to be produced, and as an end result.” In, the bill goes up.”

However, there is an agreement that Remedy.comor an increase of 15% of the minimum critical income or non-contributory pension, as well as 200 euro check For workers or pensioners from households earning less than €14,000, they can be used to help break through the pit of rising prices without adding excessive fuel to the fire of inflation.

3.- Is inflation calculated well?

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Complies with the methodology used by INE to calculate price developments European Statistical Code of Practice, is supported by Eurostat and complies with EU regulations. Even then, INE itself has been working with power sector companies for months To include liberalized market prices in the calculation of CPI, which covers about 70% of households (about 70%). from bills domiciled in Caxabank, Its research service estimated in January that 2021 inflation would have closed the year at 4.7% (the official 6.5%) had liberalized markets been included in its calculations. The INE outright rejected such conjecture, but what is clear, in the eyes of economists, is that “There is an upward bias” This factor results in inflation.

“If there is an additional point of inflation, it could create conditions for an increase in pensions,” reflects Bosca. independent authority for financial responsibility (Airf) estimates that at each point of inflation there is an overspending on pensions of 1500 million. If they manage to avoid the 3.5 points of inflation as the government intends, the savings could increase to ₹5,250 million. This is one of the objectives sought by the executive.



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