The ECB concludes that neither Spain nor Germany have known how to alleviate the blow of inflation on inequality
Spain was, along with Germany, the only country in the European Union that failed with its measures to offset the impact of inflation on inequality, by applying very few policies on the income side – aimed at reinforcing the incomes of the most vulnerable – and opt for generalized price measures, such as lowering VAT on food.
“The inflationary impact was very different in the different countries of the Eurozone in 2022 and the distributional impact of inflation also varied. The adverse effect on inequality was largely offset in all countries, with the exceptions of Germany and Spain,” concludes a document published by the ECB and signed by thirteen experts from different institutions such as the ECB itself, the European Commission or the banks. centers of Spain, Portugal, Greece or Italy.
According to the study, which does not have to coincide with the official position of the BCE, they warn, the income measures applied in the different countries have contributed to mitigating the loss of purchasing power and the increase in inequality.. Spain, however, has mostly opted for price measures (aimed at lowering what households pay), which have proven to be more “inefficient” than income measures (to reinforce the income of vulnerable families), hence Here inequality has been maintained and the loss of purchasing power has been one of the highest in the EU, along with Greece, over 3%.
The first group would include measures such as the 200 euro check for vulnerable families, the increase in minimum and non-contributory pensions, the increase in study scholarships or the subsidy for heating – these last two have not been taken into account. due to its low budgetary impact-; while the second includes the lowering of VAT on food, the fuel subsidy, the reduction of VAT on electricity and gas, the special tax on electricity, or the Iberian mechanism. All of these have had more impact on high incomes, because they consume more.
“Fiscal measures have contributed to alleviating the inequality gap that the rise in inflation created between households with lower incomes and those with higher incomes.”. More generally, for the euro area aggregate, the well-being gap between the lowest and highest income deciles narrowed by around 60%. Only Spain and Germany continue to present significant differences in exposure to inflation between households,” they note.
In Germany, inflation was offset by rising wages, but this benefited higher-paid households more.. Therefore, in these two countries, “lower-income households lost a greater proportion of their disposable income”, in fact, in our country, the gap between the highest and lowest income decile amounted to 5.1% , with an average loss per household of 7%.
The measures applied by the Spanish Government have not been very useful in combating inequality, concludes the report published by the highest monetary policy institution, and, furthermore, they will soon be eliminated, which in turn will result in a greater increase in the inflation from 2024. The second vice president and Minister of Labor, Yolanda Díaz, quantified this Monday in 1.5 additional points the impact of ending them on the price increase.
Added to this is that the 'base effect', the comparison with a few months last year in which inflation was very high, which drives the current index downwards, is being diluted and will contribute less and less to lowering the CPI. The ING experts explain it: “The interannual evolution of the consumer price index is influenced not only by the variation of the price index of the month in question, but also by the starting point or base value of last year (… ) Favorable base effects in the first half of this year helped slash headline inflation. Since early summer, we have entered a new phase in which favorable base effects play less strongly, allowing headline inflation to pick up again.”. Therefore, they expect general inflation to rise again in the coming months.