Cost of living in Spain at an unprecedented high

Consumers in Spain ended 2021 paying prices 6.7 per cent higher than they did in December 2020, an unprecedented increase in the cost of living over the last three decades.

The latest monthly inflation data from last year places Spain as the country within the great economies of the euro that closed 2021 with higher prices, with the cost of living at an unprecedented high.
Within the European Union, only the Baltic countries such as Estonia, Lithuania and Latvia ended up paying more for consumer goods, according to data published on Friday by Eurostat.
In the absence of the end-of-year inflation data for the EU countries with their own currency (in this group are, for example, Poland, the Czech Republic, Sweden or Denmark), the Spanish suffered an increase in prices higher than that of Belgians, Dutch, Germans, Italians and French.
However, if the average price increase for all months of the year is taken into account and not only the data for the last one – a calculation that more faithfully reflects the inflation recorded throughout the year – Spain, with 3 per cent, is below Germany (3.2 per cent) and Belgium (3.1 per cent), although above the Community average (2.7 per cent).
Unlike the rest of the large European economies, where year-on-year inflation remained stable in December and even fell compared to November, in Spain, it increased 1.2 percentage points.
Part of this rise can be attributed to the fact that Spain started from a situation of lower prices last year than other neighbouring countries in December 2020. Starting from a situation of lower prices, when prices rise, the year-on-year increase is amplified – what is known as the base effect or step effect.
However, the bulk of the rise in consumption is attributable to the energy price crisis. Although it is still known which specific products have risen the most in price, the National Statistics Institute (INE) advanced at the end of December some factors that point to the electricity bill as the main cause and, to a lesser extent, the rise in food prices.
It should be remembered that last December closed with the highest electricity bill in history: around €120 euros for an average home in the regulated market  (to which 40 per cent of Spanish homes belong), according to the OCU. This amount is 24 per cent higher than in November and double what was paid in December 2020, despite the strong tax cuts that the Government has introduced.
Apart from the energy crisis, the disruptions that still persist in global supply chains continue to cause shortages in certain raw materials (especially microchips.) The pandemic still prevents the normal functioning of various services (tourism, concerts, cinema, etc.), so consumers continue to shift these expenses to material goods (especially technological ones.) The problems that companies are having to meet all this demand have caused prices to rise.
However, most analysts believe that, at least in Europe, all these pressures – including energy prices – will dissipate throughout this year.
One of the main consequences of high inflation is that consumers lose purchasing power if wages do not rise. Unlike what happens with inflation data, which both the INE and Eurostat at the European level publish every month, it is more difficult to measure with such frequency and precision how wages evolve.
An approximate way of knowing if wages are responding to inflation is to use the statistics for updating collective agreements published by the Ministry of Labour and Economic Affairs. In Spain, almost three out of every four workers are covered by a collective agreement.  The latest figures, published in November, show that salaries subject to the agreement have risen on average by 1.5 per cent, an increase far removed from December’s inflation (6.7 per cent) and even from the average of last year (3.1 per cent.)
Public employees, for whom the Government approved a 2 per cent salary increase in the General State Budgets, have also lost purchasing power. The only group shielded from inflation are pensioners, whose benefits have been updated in line with the rise in the CPI, as approved by the Executive at the end of last year.

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