Concerns about inflation in Europe have not been resolved. The Organization for Economic Cooperation and Development (OECD) recalled this Wednesday that the eurozone still suffers strong pressure on prices in the eurozone. It has done so in a study in which it analyzes the economic situation of the European Union and recommends maintaining the restrictive economic policy undertaken in the last year by the European Central Bank (ECB), which has brought interest rates to all-time highs, and at the same time control fiscal policy, especially by reducing public debt.

The OECD forecasts suggest that the CPI variation rate will close 2023 at an average of 5.8% in the euro area and will continue to moderate until falling to a rate of 1.5% in 2024.. Confirmation of the predicted forecast for the current year would mean a considerable slowdown in the escalation of prices with respect to the situation a year ago. However, the OECD recalls that inflation in the euro area is still above the 2% target set by the ECB's fiscal rules, suspended until the end of the year.

The international organization points out that inflation has acquired a “generalized and persistent” nature in the Old Continent. In fact, according to the latest Eurostat data – still provisional – in August all euro partners recorded CPI variation rates above 2%.. Spain and Belgium were the countries with the lowest inflation levels last month, with rates of 2.4%. The OECD fears that, as prices rise, workers' demands to revalue salaries will also rise and that could lead to a new rise in inflation – what economists call the second round effect.

Given this situation, the OECD's recipe to control prices has two legs: “continue applying a restrictive monetary policy and redouble efforts so that fiscal policy is better focused and more sustainable”. “The monetary and budgetary authorities must act in synergy to be able to alleviate inflationary pressures in a sustainable manner,” says the study.

The Paris-based organization thus invites the ECB to continue on the path followed in the last year, which has raised the official price of money to the highest since the entry into circulation of the euro in 2002. Its president, Christine Lagarde, points in the line indicated by the OECD. Just ten days ago he warned that interest rates will remain high for “as long as necessary”, given that “the fight against inflation has not yet been won.”

However, the OECD study recognizes that a restrictive monetary policy has risks and can especially harm those countries in which there is a high proportion of variable rate mortgages.. Despite the force of the fixed rate in recent years, in Spain the majority of outstanding home loans are of this nature. Specifically, there are close to four million families with variable-rate mortgages, which over the last year have seen their monthly installments become more expensive.

Withdraw measures and reduce debt

Consequently, the OECD recommends to the monetary and fiscal authorities “macroprudential measures”, as well as “a more efficient public spending and with a sensible prioritization”.. In this sense, the international organization invites community partners to progressively withdraw the support measures adopted in the face of increases in the price of energy derived from the Russian invasion of Ukraine.. “Measures to mitigate the energy crisis have further increased public debt and must be more focused and, progressively, withdrawn, although energy prices remain high,” the report assesses.

In Spain, aid for public transport, the fuel discount for professionals – which from September will be reduced to 5 cents per liter – and the reduction in VAT on food are still in force.. The OECD's objective in proposing the gradual withdrawal of this type of measures is to reduce public debt. They recognize that public actions, with their consequent spending, have served to avoid “a serious recession”, although they remember that “the short-term prospects remain surrounded by uncertainty.”

In this way, the report encourages European countries to undertake “a downward path towards more prudent debt levels”. According to the latest provisional data from Eurostat, public debt in the euro area stood at an average of 91.3% of GDP in the first four months of the year, still above the 86.6% of the first four months of 2019, despite accumulating eight quarters of consecutive declines. Spain is the fourth member of the single currency with the most debt (112.8%), only behind Portugal (113.8%), Greece (143.5%) and Italy (168.3%).

Beyond price controls, the OECD also encourages the countries of the European Union to strengthen the integration of the single market and accelerate the reduction of emissions to achieve “stronger and more sustainable” economic growth.. The forecasts of the Paris-based organization point to an advance of 0.9% in the GDP of the eurozone in 2023, which will give way to a greater recovery in 2024, a year for which growth of 1.5% is expected.