Inflation in Spain: causes and current measures

News in Spain Leave a comment   Published on par Jonatan Carbonell

We recently told you about the Spanish economic situation during 2022 and, as we know that most of the doubts revolved around inflation in Spain, we explain below the possible causes and the measures taken by the Government.

Inflation trends in Spain

It is no secret that this year has been marked by a notorious inflation rate worldwide. In the case of Spain, the cost of living has been skyrocketing and the statistics confirm it.

In this way, the Consumer Price Index (CPI), also known as inflation, allows us to know the evolution of the prices of goods and services consumed by the Spanish population and thus establish their increase in price over a defined period of time.

By June 2022, a consumer price index (CPI) of around 10.2% is expected, reaching a maximum level not seen in the last 37 years.

Likewise, there was a 4.9% increase in the price of transportation, bringing its year-on-year rate to 19.2%.

Based on the data provided by the National Statistics Institute (INE), below is a graph showing the development of inflation in Spain over the last 7 years:

 

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In general terms, from April 2021 onwards, the upward trend in prices takes on greater prominence, with the inflation rate in Spain standing at 2.2%, and closing 2021 with a high rate of 6.5%.

But, let’s review why this situation arises? Everything indicates that, after the arrival of the COVID-19 pandemic, the reopening of the economies generated an imbalance between supply and demand of products in the Spanish territory.

However, together with supply problems such as gas and the recent war between Russia and Ukraine, economic problems within the European Union worsened, once again affecting inflation in Spain.

Likewise, the European Statistical Office, Eurostat, states that the year-on-year inflation rate for the euro zone will reach an all-time high of 8.6% in June 2022.

In addition, there has been a 4.2% increase in the price of energy in Europe, an 11.2% increase in fresh food, a 3.4% increase in services and a 4.3% increase in non-energy industrial goods.

 

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How is inflation combated in Spain?

The Spanish Government has announced a package of measures to address the current inflationary situation affecting Spanish society.

In March 2022, certain measures were established to combat the possible negative effects that could be generated by the war between Russia and Ukraine. These included: a 20 cents bonus on each liter of fuel, extension of the electricity bonus to 600,000 families, as well as imposing a 2% limit on rent reviews.

However, everything seems to indicate that the country needs a major action plan to really combat the economic consequences that are increasingly affecting the Consumer Price Index.

In this regard, the President, Pedro Sánchez, is proposing to introduce two new extraordinary taxes over the next two years: one aimed at large financial institutions, and the other at energy companies.

What is the bank tax?

With this new regulation, the Spanish government expects to collect at least 1.5 billion euros per year during the two years of the levy.

This tax will be aimed at those companies with a turnover of more than 1,000 million euros per year, and it is expected that the money collected will be used to implement actions such as free transport passes until the end of the year.

On the other hand, the possibility of applying a 5% tax on commissions and interest charged by banks to customers is being studied.

The Spanish authorities see this tax as an opportunity for financial institutions to help curb the country’s latent inflation.

However, we also find representatives of the banking sector speaking out against the measure, arguing that it may negatively affect consumption and monetary collection, or the banks’ own ability to finance themselves.

 

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What is the tax on energy companies?

Another of the measures announced to which attention should be paid is the exceptional tax for large energy companies in Spain.

In this case, it is expected to raise 2 billion euros per year for the next two years (2023 and 2024), and is currently expected to come into force on January 1.

Likewise, among the companies that will be affected by this measure are those dedicated to the electricity, gas and oil sectors with a turnover of more than 1,000 million euros per year.

Likewise, the President of Spain, Pedro Sánchez, expects this regulation to offset public spending and promote a decrease in inflation rates in Spain.

The Ministry of Finance states that the Government will meet with the banks and soon the authorities will be providing more details concerning both taxes and the specific type of companies to which they apply.

 

At TAS Consultancy we remind you that keeping up to date with the latest business news is the key for your business to succeed, so every day we offer content on our blog to inform you about the aspects that can affect or boost your business in Spain. Click here and enter our website now!

 

Published on par Jonatan Carbonell

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