Inflation returned Spain to the nightmare of the seventies

admin April 3, 2022 34 Views
Updated 2022/04/03 at 7:13 AM
10 Min Read
Inflation returned Spain to the nightmare of the seventies
Inflation returned Spain to the nightmare of the seventies Listen to this article

Spain was out of the European Union, months before the VAT was implemented, and the premiere of the first film in the saga appeared on billboards terminator, Going back to the year 1985 is like traveling to a country that many people remember, but that no longer exists. High inflation figures have once again thrown their four digits into the limelight as a reminder of the unusualness of the moment: a 9.8% increase in prices in March, a rate not seen in Spain since May of that year. If you are 36 years old and under 10 months old, you have never experienced growth like this.

The data is still there as a statistical effect: annual inflation is compared to events that occurred in the month to the same period of the previous year, so if the measurement is made in a month of low prices or even negative, So the jump is more likely, resulting in an alarm. However, the prolonged price rise, which has accumulated 12 months above the ECB’s 2% target in Spain, and exacerbated by the Russian invasion of Ukraine, has resulted in an outburst of malaise that overwhelms Excel files. And it drives into the real economy through striking truckers, street farmers and ranchers, idle fishermen and disgruntled consumers.

With what can this crisis be compared? Saving distances, the most frequent analogy consulted by experts goes back to the seventies, when at times one of those perfect storms ravaging the economy was brewed: the Arab countries destroyed Israel. To support the West had stopped selling oil. Yom Kippur War and crude oil skyrocketed. The United States separated the dollar from gold and currencies fluctuated freely, which Washington took advantage of to fund the Vietnam War. The consequences were fatal: inflation broke out and spread to Europe.

As economic historian Francisco Comín points out, Spain tried to dodge the coup, but the measures taken postponed it and made it worse. “The Franco regime did not transmit the rise in domestic prices to crude, swallowing up the losses of Campasa, an oil monopoly. This delayed the energy crisis in Spain until 1976, when the effect on prices exacerbated inflation and the economic crisis. Spain has become accustomed to living with inflation: it spent 11 years, between 1973 and 1984, with consecutive double-digit price increases—something not even the most negative pessimists of today consider. Inflation would peak at 28.4% in August 1977, but the shocks would continue. “Inflation remains the economic threat to 1979”, reads a headline in this paper that year.

Referring to the fuel subsidies, Pablo Martín-Essena, emeritus professor of economic history at the University of Alcalá de Henares, warned, “The mistake was made, which can now be repeated, not trying to pass the cost increase to the final products.” has been.” The executive has been giving since Friday. In his opinion, as long as the dependence on energy remains, the sensitivity to these remains Shock external max. “Politicians should talk to citizens about what is happening and tell us that our income is going to decrease in the coming years. We are getting poorer. We have to tighten our backs. Nothing to compensate, nothing to increase public spending to reduce income loss or lower taxes, because the latter will have to pay off that debt in the future, and future generations don’t deserve it.

He knows all the sides of the coin deeply.

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The professor admits that families are in better shape, as they got out of debt after the Great Recession, and now have a certain cushion to which to add to the savings accumulated in the pandemic, when restrictions prevented spending, “but so It doesn’t mean that both you and I will have to pay a higher price because a war has broken out,” he insists.

Miguel Cardoso, Spain’s chief economist at BBVA Research, draws parallels with the seventies, when a war also caused restrictions in the supply of fuel, an input that is as important for productive clothing as blood for the body. Is. But he finds notable differences: on the positive side, Spain is part of the euro, relies on a more reliable central bank, and doesn’t need to resort to expensive financing in the markets.

On the downside, it cannot devalue the currency to gain competitiveness, which exposes it to additional risks. “If wages rise higher here than in our business partners, companies may lose competition by shifting these costs into their own prices, which is why income settlement is so important.” Comin adds to the list that on the public debt side, which closed 2021 at 118.4% of GDP, margins for launching anti-crisis schemes are lower than before. “The transition began with the public debt counter (and its percentage in GDP) practically at zero [en 1975, año de la muerte de Franco, era del 7,3%], whereby it can be used to finance the creation of a welfare state”. At the time, however, the state barely provided public services.

Spain among the countries with the highest inflation

In recent months, Spanish inflation has been above Europe. And the distance, from 1.7 points in February, has widened even further in March, and is now 2.3 points—9.8% versus 7.5% in the euro area—. The event reverses a trend following the financial crisis, when Spain kept prices slightly below those of its partners due to low domestic demand. And so it returns to its traditional state: in the early 2000s, and especially in the 1970s and 1980s, Spanish inflation exceeded that of its community neighbours.

One of the factors that analysts consider important to explain why Spain was the fifth country in the euro with the highest inflation in March is the way it calculates the price of electricity. Unlike other states, it does not include long-term contracts on the free market, and only accounts for regulated rate prices, which are more volatile. INE sources say they are working with power companies to fix it, but they still don’t know how long it will take to fix the discrepancy.

There are other reasons as well: the carriers’ strike is an exclusively Spanish movement that has been able to translate into price increases due to shortages. For example, the figures for the automobile sector are staggering: barely 60,000 cars were sold in March, compared to 86,000 cars sold in the same month last year, down 30%.

two opposing forces

The inflationary quake has overshadowed the recovery, which was meant to take advantage of the end of the pandemic-caused restrictions this year, so that we can forget about opening hours on the back of heavy public stimuli deployed by European funds. Like two giants at opposite ends of a rope, inflation and growth are now in a bitter dispute to be the heroes of the year.

At the moment, there is a clear advantage for the former, fueling the fear of inflation-inflation – inflation without growth – but for Javier Brun, director of the Masters in Banking and Finance at UPF-BSM in Barcelona, ​​not even a price increase. They would have consumerist enthusiasm after a certain pandemic. “After almost three years of sanctions, if we just held a referendum in Spain, the majority would tell you they wanted to travel. We have spent on products and now desire to spend on services. In restaurants, travel and hotels. The growth spurred on by the desire to return to normalcy can take us away from the stagflation recession”, he predicted.

For Cardoso, from BBVA Research, war is about to change travel decisions as well. “Spain is going to receive many tourists who don’t want to be close to the conflict and in a normal case they would have gone to Eastern Europe or to countries like Greece and Turkey.” He also hopes that streamlining projects involving the European Fund will help spur activity. Instead, he sees a storm cloud in stagnation in the electro-intensive industry, which threatens to create new bottlenecks, and in new lockdowns in China due to the strict zero-Covid strategy promoted by Beijing, which strains global supply chains. .

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