- March’s rise is the highest in almost forty years, driven by electricity, fuel and food.
- Core inflation is also rising, a sign that higher prices are spreading to more products and services.
- Contracts, rents and wages with indexation clauses merit a careful review.
The National Statistics Institute (INE) confirmed on 13 April 2022 that the consumer price index (CPI) for March stood at 9.8% year on year, the highest since May 1985. Prices also rose 3% in a single month. Core inflation, which excludes energy and unprocessed food, reached 3.4%, its highest since September 2008.
The final figure matches the flash estimate published at the end of March and reflects the effects of the war in Ukraine on electricity, fuel and food, in addition to the carry-over from previous months. For families it means a loss of purchasing power; for companies, higher costs and growing pressure on wages, prices and contracts that are adjusted with the index. The difference from previous months confirms that price rises accelerated sharply after the start of the war.
What the CPI measures and what core inflation says
The CPI measures the change in the prices of a representative basket of goods and services consumed by households. The annual rate compares the month with the same month of the previous year, while the monthly rate shows the change from the previous month. That prices rose 3% in a single month gives an idea of how quickly some basic products became more expensive.
Core inflation leaves out the most volatile components, such as energy and fresh food, and shows whether the rise is confined to a few products or is spreading. That it has reached 3.4% indicates that the price rises have moved from energy to other goods and services, and that their correction will not depend only on fuel or electricity prices falling. The CPI is published monthly and the INE also offers a flash indicator at the end of the month, which makes it possible to anticipate the figure.
Where it shows in contracts and rents
Many agreements are updated with the CPI: rents, supply and service contracts, fees, charges or maintenance payments. For residential leases, the royal decree-law approved on 29 March limits the annual rent update, until 30 June and in the absence of agreement between the parties, replacing the CPI with another index, so that increase will not be passed on in full. In other contracts, such as commercial premises or services, what was agreed applies.
Pensions were revalued by 2.5% in January, a percentage that is now far below the CPI, and collective agreements with wage-review clauses are starting to show strain. For companies the challenge is twofold: absorbing higher procurement costs and responding to demands for wage updates without losing competitiveness, which will depend on each sector and each agreement.
What to review
It is worth reviewing which contracts have indexation clauses and with what index or date they operate, and checking whether there are caps, floors or alternative mechanisms. In new contracts, it is worth setting out clearly the index, the frequency and the way the review is communicated, to avoid later disagreements when the percentages are high.
Families can review their budget in real terms and consider the effect of inflation on savings: a low-yield deposit loses purchasing power when prices rise this fast. Every case depends on circumstances and time horizon, and this note is for information only; the prudent course is to consult your adviser before taking decisions on contracts or investments.
An inflation rate of 9.8% requires revisiting contracts and budgets that were drawn up with different numbers.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
