Published on Tuesday, November 23, 2021

Spain | The other kind of inflation

The year-on-year change in the consumer price index reached 5.5% in October, the highest level seen in the Spanish economy since before the global financial crisis. More worrying still, however, is the inflation we have not yet seen, because companies are forgoing margins.

Key points

  • Key points:
  • The rise in prices is far from being all across the board: what we see is a focused increase in the price of energy. Four percentage points of last month's inflation are explained solely by the energy component, in fact. The rest of the core household basket is becoming dearer at an average annual rate of 1.5%.
  • Some prices that have recently increased follow sharp adjustments during the pandemic. For instance, transport, accommodation and package tours. Their price, in any case, is still far lower than in 2019.
  • The Bank of Spain estimated that 80% of the increase in the price of electricity is explained by the higher price of gas. Gas will continue to be expensive as long as there are doubts about supply and we have a dry, windless and cold winter.
  • The biggest worry is the inflation we haven't seen yet. Company costs have risen considerably over the past few months. In addition to the cost of energy, there is the disruption of global supply chains, the shortage of containers for export, and an increase in the price of other commodities.
  • The danger going forward is that wages fail to reflect the effort that companies are making by forgoing their margins in the hope that the situation is temporary and fearing that further price increases could cool down household demand.


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