The rise in inflation threatens to eat up 50,000 million of family savings and make pensions more expensive | Economy

The rise in prices, spurred by the rise in energy costs, has become an overwhelming wave that threatens the purchasing power of Spaniards, the value of their savings, part of the funds consigned for in the General Budget of 2022 and the very vigor of the economic recovery after the Covid-19 crisis.

The shopping basket for this month of October has been 5.5% more expensive than that of just a year ago, according to the advance data of the Consumer Price Index (CPI) anticipated this Thursday by the National Institute of Statistics ( INE), which emphasizes that this is the largest jump recorded since 1992.

The INE highlights that “in this behavior, the increases in electricity prices and, to a lesser extent, fuels and lubricants for personal vehicles and gas stand out, compared to the decreases registered in October last year.” In any case, the CPI is accelerating its rate of increase, with an advance of 2% per month that is more than doubling the rate of increase of 0.8% detected in September.

Furthermore, the shopping basket is becoming more expensive even after discounting the most volatile elements, such as energy prices or non-processed food, as indicated by the underlying CPI, which shows an increase of 1.4% (compared to 1% of the previous month). Even so, the difference between the two indicators is the largest since 1986, which gives an idea of ​​the weight of the electricity bill in the vertical rise in inflation.

Impact on savings

Unlike other macroeconomic figures, the impact of these is direct and noticeable on the pocket of the Spanish. It supposes, for example, a significant loss of value of their savings, which have reached historical highs during the pandemic due to the precautions adopted to face the crisis and the impossibility of carrying out traditional consumption habits.

Specifically, Spanish households hoarded 923.8 billion euros in bank deposits at the end of September, according to the records of the Bank of Spain. Well, an inflation of 5.5% supposes a reduction of some 50,800 million euros in the real purchasing power of said savings compared to the effective value that that figure would have supposed a year earlier. Even moderating the blow to the calculation of the average CPI for the year, instead of this month’s point, Spanish savings lose about 25,000 million of their initial value.

Hit to wages

In the same way, Spanish salaries have lost an important purchasing power as a result of inflation. Thus, taking as a reference the wage increase agreed to in the agreement at the end of September, of 1.46%, it turns out that the 6.17 million affected workers have lost more than four points of purchasing power compared to the October CPI.

It also turns out that only 17% of the agreements this year include the so-called wage guarantee clauses, with which only one million of these workers have their purchasing power protected against the advances of the CPI. The situation may be even more difficult for the nearly 14 million employed persons not covered by the aforementioned agreements.

Brake to recovery

Economists and analysts from houses such as Funcas or Fedea have already been warning in recent months that a strong rise in inflation, however temporary it may be, will result in a reduction in consumption in real terms, which may end up slowing down the exit speed of the Covid-19 crisis.

The First Vice President of the Government and Minister of Economic Affairs and Digital Transformation, Nadia Calviño, acknowledged this Wednesday that the escalation in prices and the bottlenecks that are taking place in the production chains may put the vigor of the recovery at risk economical.

Budget cost

On the other hand, the apparently unstoppable rise in the CPI may have relevant consequences on the room for maneuver of the General State Budget project for 2022 that the Government has designed.

There are, after all, a series of inflation-indexed costs that will eat up most of public funds the higher the CPI figure. The clearest and most worrying case is that of pensions, given that the reform promoted by the Executive and still being processed by Parliament indexes their amount to inflation.

Invoice in pensions

The internal calculations handled by the Government, as this newspaper has learned, indicate that the cost of revaluing pensions will amount to 1,470 million euros for every tenth of increase in the CPI.

The revaluation, in any case, will not be done with the 5.5% year-on-year increase in October, but with the 12-month average obtained once the final data for November is published.

If it remains on the current path, this data would show an increase of about 2.5 points. As a result, the Government will have to allocate 3,675 million euros to update the payroll of pensions for the year 2022, an increase that also consolidates for the payment of the coming years.

But, beyond that, the Government still has the obligation established by the old system to compensate pensioners for the deviation of the CPI under which this year’s benefits were updated to guarantee their purchasing power. As for 2021 their payroll has already been increased by 0.9%, the rise in the CPI could force them to disburse the so-called “pay” worth 2,350 million more. That is, a cost of more than 6,000 million euros.

If the rise in inflation continues, and the average CPI of these 12 months ends up being around 3%, the impact of the revaluation would already be around 4,500 million euros and that of the payroll 3,087 million, yielding a total bill of about 7,500 million.

The functionaries

On the side of the civil servants, for whom the Ministry of Finance and Public Function has recorded a salary increase of 2% (about 2,900 million euros) regardless of the behavior of the CPI, the problem will be in the loss of purchasing power that they suffer with respect to to inflation.

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