K Shaped Inflation Settles In Spain

K Shaped Inflation Settles In Spain

The K is becoming the letter that best explains the economic repercussions that the impact of the pandemic has brought, with a strong negative impact on inequality. The spelling is also occurring in the evolution of inflation.

According to the INE, the differential between the general CPI and the underlying CPI, which excludes energy and fresh food from the basket of products due to high volatility, has never been higher . The fact that these types of products are triggered does not have a neutral effect on the shopping baskets of social groups.

K-shaped recovery . K-shaped labor market . And now K inflation . The K has become the favorite letter of economists to explain the economic situation. Its form is the one that best adapts to when there are strong divergences in different components and the one that is best associated with economic inequality to attribute an increase in the gap between the classes with the lowest and highest income.

And inflation, which is becoming the biggest concern in the market and in the economies, could not be left behind to draw a K. The INE today published the advance inflation data for May. The annual rate of the CPI scales to 2.7%, the highest figure in four years .

But, despite the rebound, there is not a general increase in the shopping basket. The underlying index of the CPI, which excludes energy and fresh food from the measurement due to its high volatility, stands at 0.2%, almost one percentage point lower than last year. Never before since Statistics elaborates the historical series of the underlying CPI has this difference been so marked, 2.5 points.

In the advanced data there are no details by components but the INE reports that the strong increase in prices in May has contributed, mainly, to the higher cost of fuels and fuels, in contrast to the drop in prices that they experienced in the same month of 2020. This trend began to be noticed in Spain in March when energy prices soared. This type of price increases is not being particular to Spain.

It is occurring all over the world. The expectations of rapid economic recovery is having a rocket effect on raw materialsdue to the rapid response that these products have to the strong rebound in demand. Last April, the CPI components made it clear that the general rise in prices was due to a few products: electricity (+ 36.9%), liquid fuels (+ 31.4%), gasoline (+20, 2%) and diesel (+ 16.5%) .

In Spain, for now, there is no increase in the price of fresh food , at the same speed, but the price of food without processing grew by 1.4%. But in international markets they are rising vehemently in products such as soybeans or rice. In Spain, it will not take long to notice inflationary pressures on food prices.

Not only because of developments in other parts of the world, but also because of what economists call second-round effects. The high price of fuel and energy ends up being passed on to the consumer. All food has transportation or storage costs involved. Although at first it is usually assumed by producers with lower margins, finally it usually ends up in the sale price .

The FAO (The Food and Agriculture Organization of the United Nations) has indicated that the global cost of food increased for the ninth consecutive month in February, presenting the longest streak of increases since 2008, when the world faced the first of the two food crises in a few years.

“The history of food prices and the history of inflation are important to the question of equality,” says Carmen Reinhart, chief economist at the World Bank. “It is a shock that has very uneven effects.”

K-shaped inflation tends to hurt people with low incomes the most. Food, gasoline or electricity occupy a greater part of their monthly shopping basket than in the case of families with higher incomes, with which the impact is greater. In addition, it is practically inevitable you can not delay your purchase, as in capital goods, or substitute other cheaper products.

The problem predates the pandemic and may have root causes, according to Xavier Jaravel, an adjunct professor at the London School of Economics. Their research has shown that a key reason richer people experience lower rates of inflation is that there is more competition among producers for their incomes, leading to higher levels of innovation in the kinds of goods and services they buy. the rich, helping to keep prices low.

“It is hoped that statistical agencies around the world will soon adopt new data sources and price indices to better measure inflation inequality,” wrote Jaravel in a recent article, “and that economists will pay more attention to distributional effects. Of the prices”.

Among economists, inflation is known as the poor man’s tax. The lowest incomes pay less in some taxes such as personal income tax, but with high inflation they are the most affected, since a higher percentage of income is allocated to basic food and household current expenses such as electricity, gas or water. If there is not an increase in wages in low incomes at the same rate as inflation they suffer a greater punishment.

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