There is a strong contradiction between the rhetoric of members of the Government on May 1 and at the rallies on wages and benefits and what has been sent in writing to the European Union in the so-called stability program 2023-2026.
Faced with government statements that employers are shooting up their margins and should allow workers to recover their purchasing power, the Executive ruled out in the document the risk that they will do so and that, therefore, inflation will be contained.
In the text sent by the First Vice President of the Government, Nadia Calviño, on April 30, the “main risk” for the fulfillment of her growth plan is “the persistence of inflation”, but she maintains before the European Commission that two elements that could feed it in the so-called “second round”, the benefits and salaries, are not a threat.
On the one hand, he believes that the rise in corporate profits has peaked because it was due to an attempt to recover pre-pandemic levels and not to greed. And, on the other, it predicts that workers will only recover their purchasing power gradually and around 2026. «The macroeconomic scenario implicitly assumes a containment of second-round effects. The main reason is that business margins reached their pre-COVID levels at the end of 2022, so their evolution in the following quarters should be marked by stability. However, he justifies the creation of an Observatory of business margins due to “the notable divergence between sectors.”
As for the salary increase, it will not be strong. “Wages will progressively recover purchasing power throughout the forecast period [2023-2026]” without assuming that they will fully recover from the inflationary impact. And both that document and the National Reform Plan underline as a positive factor to contain the CPI that “compensation per employee grew in the whole of 2022 less than consumer prices.”
As for the government attacks on distribution and food production companies as guilty of making the shopping basket more expensive, the document to Brussels says the opposite. “In 2022, imported costs explained almost 95% of the increase in food prices” due to “international prices for raw materials, including food,” describes the text prepared by Calviño’s team.
“Therefore, the evolution of the domestic components of prices – margins and wages in the food chain – is not at the origin of this price tension,” he says.
In addition, the Ministry of Economic Affairs has no doubt that the hypermarket and supermarket chains are passing on the drop in VAT, in light of the doubts generated by members of the Government itself. «The reduction in VAT on food has been transferred in full after less than a quarter in force and alleviates inflationary tensions. Starting last January, a VAT reduction was applied for a wide basket of fresh and processed foods. According to the CPI data for March, the full transfer of the food VAT reduction is maintained.
The great risk that the Ministry does admit is a tightening of the price of money by the European Central Bank due to “a surprise in underlying inflation in the euro zone during the second part of 2023.” For now, according to data released this Tuesday by the Eurostat community office, headline inflation not only did not subside, but picked up in April in the Eurozone to reach 7% and core inflation slowed slightly to 5.6 %. Both remain high and Spain is below the average in the first, but above in the second.
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