Spain’s September CPI increase of almost 1% meant that wage increases agreed in collective agreements were lower than price increases for the first time in five months.
Despite the upward trend in wage increases agreed in collective agreements, price growth in September exceeded wage increases. According to INE data, annual inflation accelerated by nine tenths of a percentage point to 3.5% in the ninth month of 2023, the highest rate in five months. Price growth slightly exceeded that of wages, something that had not happened since April, when the CPI surged 4.1%, compared with a wage growth of 3.14%. In subsequent months, the slowdown in inflation left room for wages, which rose by more than 3.2%.
During this period, inflation has now risen for three months, after falling to 1.9% in June, temporarily meeting the European Central Bank’s (ECB) target of limiting price growth to 2% – suspended until the end of the year. That delay was indirect. The threshold desired by the monetary authority was crossed again in July, with a year-on-year CPI surge of 2.3%, followed by two more hikes. The most pronounced was in the last month, when inflation accelerated by nine tenths of a percentage point to 3.5%.
The rebound in prices is mainly due to a statistical effect known as the ‘base effect’ or ‘step effect’. When inflation is measured in year-on-year terms, as the percentage change between one month’s CPI and that of the same period of the previous year, the comparison with September 2022 – when the rise in energy prices began to wane – is unfavourable .Petrol, for instance, rose by 15.8% in the past year. Excluding energy prices and unprocessed food prices, core inflation fell by three tenths of a percentage point to 5.8% in September, the lowest rate since June 2022.
The rise in inflation was thus not unforeseen, but was expected due to the ‘base effect’, which will continue to push up the CPI until the end of the year. According to the European Commission’s forecasts, Spain will end 2023 with an average price increase of 3.6%, the lowest expected rate of the main eurozone economies and similar to that predicted by the Bank of Spain. In this inflationary environment, the social partners signed in May the V AENC, a framework agreement that recommends wage increases of 4% in 2023 and 3% for both 2024 and 2025, with a wage revision clause that, in case of inflation deviations, can include additional increases of up to 1% for each of the years the agreement is in force.
Differences by sector
There are differences by sector, with agreements relating to domestic activities showing the highest increases, with an average wage increase of 6.35%.This is followed by agreements in the artistic and recreational activities, hospitality and trade sectors, all with an average increase of more than 3.7%.In contrast, agreements related to energy supply, real estate activities and extractive industries do not reach the average increase of 2.4%.
Reduced purchasing power
The upward trend in wage increases does not offset the loss of purchasing power that wages have accumulated in recent years. The average wage increase agreed in collective agreements in 2022 was 2.99% – the rate rose to 3.18% after applying wage guarantee clauses – a figure almost three times lower than inflation, which averaged 8.5% for the whole year. Although less significant, the difference in 2021 also favoured the CPI, with wages increasing by 1.61% on average, compared to the annual price swing of 3.1%.