Thursday, October 6

Inflation soars to 6.7%, at the level of almost 30 years ago

The inflation climbed in December to a year-on-year rate of 6,7%, the highest level in three decades. The consumer price index (IPC) has shot up again in December to 1.3% compared to the previous month, according to the advanced indicator published by the National Institute of Statistics (OTHER). The level reached this month, if confirmed with the final data in the middle of next month, is the highest since March 1992 Y subtract purchasing power to the wages and to saving, whose rises are far below, and raises the rents that are paid from rental, which are generally based on the annual inflation rate.

Notable in this evolution is the rise in the price of electricity, higher this month than in December 2020. Also influencing, although to a lesser extent, the increase in the prices of feeding, compared to the decrease registered last year. As a consequence, the rise in the general price level compared to the previous month is the second largest of the year, after October (1.8%) and followed by April (1.2%) and March (1%).

The price of electricity, which has reached close to 400 euros per megawatt per hour (MWh), has set several records this month, which could make it the most expensive in history. All of this has affected the CPI and is beginning to affect the entire economy.

The data, which contrasts with the year-on-year close in December a year ago, which was -0.5%, reflect that the rise in the general price level, which began with the Energy, is moving to the set. The Underlying inflation (general index excluding unprocessed food and energy products, the most volatile elements) increased four tenths to 2.1%, which is almost five points below the general CPI.

The European Central Bank (ECB), which until recently had considered the rise in inflation as transitory, has already eliminated that qualification from its speech, although for now it rules out increases in interest rates. The US Federal Reserve, for its part, has already admitted that inflation has crept into all sectors and anticipates three increases in the price of money next year.

According to INE data, the estimated annual variation rate of the harmonized CPI is also 6.7%, more than one point higher than that registered the previous month. The average annual inflation stands at 3.1% this year 2021, at the level of 2005, if the data is confirmed in the middle of next month.

For its part, the estimated monthly variation of the HICP is 1.2%. The price level has effects on many variables, ranging from salaries to savings or pensions, although the latter are based on the average annual inflation recorded last November, which stood at around 2.5%.


The evolution of inflation contrasts with that of wages, which until November accumulated an increase of 1.49% in the 2,757 agreements registered until November 30. This salary increase is below the guidelines set out in the interconfederal agreement for employment and collective bargaining (AENC) 2018-2020, which proposed salary increases of around 2% plus one percentage point linked to concepts such as productivity, business results and absenteeism from work.


It also affects pensions. Pensioners will benefit from a payment to compensate for the deviation with respect to the estimated inflation that served to update them in 2021, 0.9%. In any case, they will not recover everything that prices have risen, 5.5%, but the reference will be the average inflation from December 2020 to November 2021, located around 2.5%. In 2022, benefits must be revalued from this level. .


In turn, such high inflation particularly affects savings in bank accounts and deposits, with an average interest of 0.01% in those with a term of up to one year; 0.47% between one year and up to two and 0.02% in terms of more than two years, according to data from the Bank of Spain referring to October. Official interest rates remain at 0%.

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Those tenants who have a rent review this month will see their rent increase by 6.7%, which is usually the reference set in contracts, that is, the interannual rate of inflation. In this way, a rent of 700 euros would become 746.7 euros, that is, 46.7 euros more per month and 560.4 euros more per year.

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