Experts at Caixa Bank spotlighted anomaly in Spain’s inflation calculations

EXPERTS at Caixa Bank spotlighted anomaly in Spain’s inflation calculations which suggests that the figure is regularly overstated.

Spain and Portugal have been working together to persuade the European Union to accept their proposals on capping energy prices and the two countries share a wholesale electricity market according to Reuters.

Although the April inflation figures show a drop from almost 10 per cent to 8.4 per cent, this is still higher than neighbour Portugal which calculates its electricity costs in a different way.

In simple terms, Spain assumes that all consumers are contracted on a variable rate so that if the price of electricity rises so does inflation but this is really not the case anymore as a significant number of individuals and more importantly companies have opted for fixed rate contracts.

As is the case with Portugal, it means that even if the price of energy continues to surge, those in fixed rate contracts continue to pay the agreed rate and would only lose out if the wholesale price dropped below that amount.

In April of this year, the Bank of Spain said government plans to reform public pensions so that they increased annually in accordance with the Consumer Price Index (CPI), would cost €1.8 billion extra for each 1 per cent increase.

Assuming that inflation is overstated by 2 per cent (which seems likely due to the current way of calculating inflation), then this year will mean that the government will need to find an extra €3.6 billion for pensions alone.

The higher the rate of inflation the more likely that the price of consumer goods will increase, whilst the value of salaries will drop.

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