The ECB rate increases and inflation suffocate families: the mortgage rises by 35% and the shopping basket by 10% in one year
The pocket of the average Spanish household has more and more holes. Families have been bearing the effect of strong price increases for almost two years, which have devalued salaries that have not grown at the same pace.. But they have also had to face the side effects of the chemotherapy with which the European Central Bank (ECB) tries to eliminate the cancer of inflation.. Ten interest rate increases – the last this Thursday, of 0.25 points more – that have drastically made variable mortgages more expensive.
In Spain there are just over 4 million families who finance their properties with variable loans. Households that landed from their vacations in September and found that they had to review their mortgage have found themselves with increases in the monthly payment that can reach up to 35% if they had to do it with the August Euribor.. This, translated into an average mortgage – 150,000 euros for 25 years with an annual update and a differential over the Euribor of one point – means paying 229 euros more per month.
Nor should we forget that interest rate increases also affect consumer loans. The letter that households pay to finance a car, a computer, a mobile phone, a washing machine…. It is also affected by interest rates and becomes more expensive. Furthermore, it is worth remembering that 5% of Spanish households have to go into debt to make ends meet.. Many of them, predictably, resort to consumer loans. Statistics from the Bank of Spain reflect that the volume of this type of loans skyrocketed in July to its highest levels since 2009.
Stopping paying the mortgage is not an option, unless there is no other choice, so the expense is cut from other items. Something that is not easy at all when the prices of basic products have become so expensive in the last year. A non-negotiable outlay is food, whose prices were 10.5% higher in August than the previous year, according to the INE Consumer Price Index.. Products such as olive oil (52.5% more expensive than a year ago), sugar (42.5%), rice (22%), potatoes (18%), pork (16% ) or milk, cheese and eggs (12%) have become even more expensive.
Fuels have recently been added to food, which has begun a new price increase in recent weeks, driven by the rise in oil prices.. 95 gasoline is now 8.6% more expensive than before the summer and diesel, 13.4%. However, fuels are now moving at price levels similar to those at this time last year.
Households cut spending, economy suffers
The deterioration of the economic situation is common throughout the eurozone. The GDP of the euro countries is stagnant and several countries—including Germany, the main economy of the Old Continent—are in negative territory.. The slowdown in Europe is already noticeable in exports, which reduced Spain's growth in the second quarter. However, the drop in domestic consumption is expected to have a full impact on the third and fourth quarters of the year.
“We are going through a phase of very slow growth,” explained Christine Lagarde at the press conference after the ECB decision.. The central bank has considerably revised downwards its growth forecasts for the coming years. Eurozone GDP is expected to barely advance 0.7% in 2023 (two tenths less than expected in June) and 1% next year (five tenths less). A review that, for the most part, reflects the current situation of the economy. “The difficult times are now. We are confident that growth will gain momentum in 2024,” Lagarde added.
The ECB is increasingly at risk of causing an economic recession as it struggles to tame prices and maintain its credibility. Lagarde insists that, although inflation has fallen, they want to reinforce that progress. “We do it [raising rates] not because we want to force a recession, but because we want price stability to reach the people who are bearing the brunt of the price increases, who are the least privileged,” he said.