Workers are recovering purchasing power in recent months for the first time since March 2021 due to higher wage increases and the drop in inflation. Salaries increased by about 5% on average in the first four months of 2023 in large companies, according to data collected by the Treasury. Meanwhile, in March and April, inflation fell below that annual rate, something that had not happened for two years.

Good economic data accompanies the coalition government to the elections


Exactly, the price increases (measured by the CPI published by the INE) were 3.3% in March, compared to the same as in 2022, and 4.1% in April. In these two months, the average increases in gross wages, according to statistics from the Tax Agency, were 4.8% and 4.9%, 1.5 percentage points and 0.8 integers above inflation , respectively. In other words, salaries recovered some purchasing power, after just 24 consecutive months of losing it.

The collapse of purchasing power, according to this same approximate calculation, reached 7.3 points in June 2022. And in the whole of last year, the damage was close to 5 points, the biggest blow suffered by workers of all developed countries, as recently confirmed by the OECD.

This suffocation has forced Spaniards to exhaust all the extraordinary savings accumulated during the months of confinement and strict restrictions due to the COVID pandemic, as verified by the Bank of Spain. It has also been reflected in the slowdown in the recovery of household consumption, despite general economic growth, the strength of the foreign sector (tourism included, but not only), the high corporate profits, the resistance of the labor market and the deployment of the Recovery Plan.

But this suffocation is easing little by little, which different institutions and experts (including the Ministry of Economic Affairs) consider will prevent household spending from faltering, also plagued by increases in interest rates from the European Central Bank ( ECB), and its impact on mortgages –due to the rise in the Euribor– and on other loans.

wage increases

On the one hand, wages are rising more in 2023 than in 2022. According to the statistics on “Sales, employment and wages in large companies”, which collects data from 30,000 companies with more than 6 million turnovers (close to 6.7 million workers, 40% from the private sector as a whole).

Specifically, the increase in wages in the last four months corresponds to the agreement signed by unions and employers in May, with a framework of increases of 4% for 2023, 3% for 2024 and another 3% in 2025, and with a review clause with increases of up to an additional 1% if inflation remains above these amounts.

If another source is used, for example the salary improvements reflected in the collective agreements, it can be observed that salaries have also accelerated, reaching 3.26% in May, a maximum since 2008, slightly exceeding the CPI, which that month it stayed at 3.2%. The difference between the two figures is due to the greater bargaining power of workers in large companies that the Treasury statistics collect.

The salary agreement of May, which works as a recommendation at the national level, avoided the 8.4% average inflation of 2022, a year in which there were salary increases of barely 3%, according to different sources. And, for this reason, the economist Eduardo Garzón points out that it is necessary “a better and more ambitious income pact [el reparto del daño de la inflación entre trabajadores y empresas] and a stricter control of corporate profits”.

The greatest compensation last year were the government measures, such as discounts on fuel, tax cuts on electricity or gas, free public transport or a 200-euro check for low incomes, and the rest of the social shield (increase in the SMI, linking the revaluation of pensions to the CPI…).

Increased margins

The Government, in fact, has pending the publication of a Margins Observatory to measure with more transparency and by sectors the ability of companies to turn sales into profits, after transferring costs (energy, raw materials, other intermediate goods, suppliers of services and also wages and contributions) to consumers. As the Executive itself has advanced on different occasions, the Vice President of Economic Affairs, Nadia Calviño, could announce this tool before the general elections on July 23.

In its latest ‘Report on the socioeconomic and employment situation in Spain’, the Economic and Social Council points out that “since the inflationary spike there has been an increase in benefits above the pre-pandemic level, according to all available sources.”

This report is agreed by the unions and by the employer, the CEOE, and ensures that, “in the whole of 2022, the increase in the gross unitary surplus of companies [una forma de medir los beneficios] explains 90.7% of the increase in the GDP deflator [las subidas de los precios internos, que excluye lo que se compra y se vende fuera de nuestras fronteras]compared to 10.9% contributed by unit labor income [los salarios] and a negative contribution of 1.6% of the unitary taxes on production”.

These numbers technically define inflation from excessive corporate profits, or salesmen’s inflation, which even the ECB has already admitted. And it assumes that “labor income is [a cierre de 2022] 2.9% below the level they had in 2019 despite the increase in employment, compared to an increase of 3.1% in the gross surplus”, according to the Economic and Social Council.

The drop in inflation

The drop in inflation (or moderation in price increases, which does not mean that they go down, but rather that they go up less) is the other factor that is supporting the recovery of purchasing power, after the bleeding of this crisis due to the Russian invasion of Ukraine. This slowdown in the CPI is mainly due to lower prices for fuel, gas or electricity.

The price reduction is taking place despite the sharp rise in food prices, the main concern at the moment, especially since the most vulnerable suffer it the most, who dedicate a greater part of their income to the shopping basket compared to their total spending each month.

This Friday, Nadia Calviño affirmed that from Economy they will monitor the data on food prices for May and June, which will be known this Tuesday, June 13 and July 12, respectively, with the publication of the CPI details for each month, to assess whether they maintain the VAT reduction on the basic basket that has been in force since January. “It will continue as long as we do not have an adequate price level, given the influence in the pocket of Spanish families”, she confessed.

Undoubtedly, the other great protection of the purchasing power of families has been the resistance of the labor market after the labor reform together with the higher quality of employment. Wages have suffered historic damage, but at least jobs have not been destroyed as in previous crises.

On the contrary, temporary employment has sunk by 14%. There are 20.8 million workers affiliated with Social Security, a maximum, although the unemployment rate, above 12%, continues to be very high compared to the eurozone average.


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