The slowdown in inflation growth has not allowed Spaniards’ wages to maintain their purchasing power, which continues to lose ground compared to pre-pandemic levels. Yesterday, the National Institute of Statistics (INE) reported that prices left the 3% barrier behind to stand two-tenths below and close July at 2.8% year-on-year, six-tenths less than in June and its lowest level since February. The fall in the price of electricity – with the reduction of VAT to 10% – and the maintenance of the reduced VAT on a large part of the shopping basket – extended until September – has led to this respite.
That 2.8% inflation rate means that although wages have kept up with inflation, they have not recovered the ground lost since the pandemic due to rising prices. A situation that extends to the years of the Great Recession, as the International Labour Organization (ILO) itself has recognized this week, which has concluded that real wages have been frozen for 10 years. A reality that has worsened in these years of rampant inflation, despite the moderation of recent months, with a rise in prices that has affected both the shopping basket and the basic elements of household subsistence, such as housing or rent.
Following this series of crises, real wages, after adjusting for inflation, have barely grown by 2.5% compared to the fourth quarter of 2019, according to data collected by the Organisation for Economic Co-operation and Development (OECD), which has analysed the behaviour of the world’s largest economies. Therefore, in Spain wages are still three-tenths below the July CPI known yesterday. In almost half of the 38 member countries, including neighbouring Portugal and France, real wage levels prior to the crisis have already been recovered or in most of them they have clearly exceeded them.
Spain continues to have higher inflation than the Eurozone – 2.8% in Spain compared to 2.5% in Europe – which represents “a barrier to the growth of real wages”, the OECD recognises. And this situation exists despite the fact that the minimum wage has grown above inflation, with an accumulated increase of 26% in nominal terms since 2019. However, once inflation is discounted, this excessive increase is reduced to a real increase of 6.5%, below the OECD average, where the real SMI is 12.8% higher than in May 2019 on average, while the median increase was 8.3%.
And the Spanish middle classes have been the most affected by this inflationary setback, taking real wages as a reference, since average wages have grown three times less than the lowest wages, favoured by the push of consecutive increases in the SMI. A collapse since 2019 that is even greater than that of the highest wages. According to the Organisation, as the SMI continues to grow on its path until it reaches a minimum of 60% of the average wage, it is the middle classes that have paid the brunt of the damage since 2019.
All of this has caused food and housing supplies prices to continue to grow above the CPI, after it was confirmed that inflation in July slowed to 2.8%, while the shopping basket did so at 3.1% and housing, at 3.2%.
For the general secretary of USO, Joaquín Pérez, the drop in prices compared to last year has only been achieved “through tax patches”, which have achieved “temporary relief” for people’s pockets but “do not correct the structural problem. The reduction in VAT is not addressing the root of the problem and basic prices will rise again as soon as the reduction in electricity or basic necessities ends”. He also indicated that wages “continue to be close to inflation, without recovering from decades of loss of purchasing power, above the general index”.
In the same vein, CC OO has warned that housing is not included in the CPI and “its price increase, both for purchase and rental, is the main factor in the increase in the cost of living for many families due to the rise in interest rates, the price of housing and the cost of rent.”
Yesterday, the INE certified that Spain continues to be above the average inflation rate of the Eurozone, which is 2.5%, and of the EU (2.6%), which places our country as the fifth country in the Eurozone with the highest inflation, tied with Austria and Slovakia. In addition, it is the country with the highest CPI of the four major Eurozone economies, since France, Italy and Germany all registered lower rates, and it is the second country in the Eurozone with the highest inflation rate in the OECD.
As for underlying inflation, it fell by two tenths in July, to 2.8%, the lowest rate since January 2022, and is now equal to the general CPI, after almost two years above it.