On 13 July 2022 the INE confirmed that prices rose 10.2% year on year in June, the highest rate since April 1985. What is rising most, and how it affects pay, rents and pensions.
The National Statistics Institute (INE) confirmed on 13 July 2022 that the consumer price index (CPI) for June was 10.2% higher than in the same month of 2021. That is a point and a half more than in May (8.7%) and the highest annual rate since April 1985. In June alone, prices rose 1.9% on May. The harmonised index (HICP), which allows comparison with the rest of Europe, stood at 10.0%.
What is rising most
Three groups explain much of the increase. Transport is up 19.2% year on year, because of fuel prices. Housing is up 19.0%, because of electricity and heating fuels. And food and non-alcoholic drinks are up 12.9%, the highest rate since the series began in January 1994, with notable rises in fruit, pulses and vegetables, meat, bread and cereals, and milk, cheese and eggs. In June itself, the notable monthly rises were in fuels (9.9%), electricity (9.1%) and fruit (9.5%).
Hotels, cafés and restaurants are up 7.2%. Core inflation, which excludes unprocessed food and energy products, rose by six tenths to 5.5%: it is the highest rate since August 1993, although it remains more than four and a half points below the headline index. The fact that core inflation is also rising indicates that the increase in prices no longer depends only on energy and fresh food.
Pay, rents and pensions
Pay is lagging behind. According to the Labour Ministry’s collective agreements statistics, the agreements registered up to May 2022, which cover 5.8 million workers, provide for an average pay rise of 2.42% (provisional figure). Some agreements include wage-guarantee clauses that revise the increase if inflation exceeds it, and many more are still to be signed or renewed, but today the gap with prices is almost eight points. The minimum wage, €1,000 a month since January, rose 3.63% on 2021.
Residential rents follow their own rule. Many contracts provide for an annual update of the rent, but Royal Decree-Law 11/2022 of 25 June extends to 31 December 2022 the extraordinary limit on that update: unless the parties agree otherwise, the increase cannot exceed the annual change in the Competitiveness Guarantee Index. If you are a landlord or a tenant, it is worth checking what your contract says and when the update falls due.
Contributory pensions are revalued each January according to the average of the annual CPI rates for the twelve months before December, a mechanism set by Law 21/2021. The 2022 revaluation was 2.5%, and the one in January 2023 will be calculated on the twelve months before December 2022, which include this 10.2%. Non-contributory pensions and the minimum living income also have an extraordinary 15% increase until 31 December 2022.
What to review
Three things are worth reviewing: the update clauses in your contracts (rents, utilities, services), the gap between what you pay and what you earn, and the calendar of upcoming updates to pay or rents. With double-digit inflation, money that earns no return loses purchasing power every month. Ask your adviser how to apply this to your situation.
With prices at 10.2% and agreed pay at 2.42%, every update clause counts.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
