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Why Spain is heading towards the largest salary devaluation in almost 40 years

Sky-high inflation and a general unwillingness among Spanish workers to ask for salary raises look set to cause the biggest drop in purchasing power in Spain since 1984.

shopping in a bakery
The purchasing power of people in Spain is the lowest it's been in decades. Photo: photosforyou / Pixabay

If you have a job in Spain and you get the sense that your wages don’t go as far as they used to, then you’re right on the money.  

It began with rising electricity prices throughout 2021 and early 2022 (reaching historic highs of €544/MWh in March 2022).

Then the cost of gas and fuel began to rise, first as a consequence of rising electricity prices and then due to the war in Ukraine.

As a result of all of this, inflation skyrocketed and in March 2022, it surged to a 37-year high.

Certain food products have become more expensive than ever, causing even more strain on Spaniards’ wallets.

In the last year, consumers in Spain have faced the sharpest price increases of any major European economy, causing the price of food to rise steeply since the beginning of this year.

Inflation in Spain now hovers around 10 percent, whereas salary increases in 2022 have only been raised by 2.4 percent on average.  

Crucially, it’s not part of the Spanish work culture to ask for salary rises. A recent YouGov survey centred on European workers found only one in five Spanish workers plans to ask their bosses for a salary bump in 2022 – the lowest rate of the 18 countries featured – with employees in Spain arguing their unwillingness to ask for a raise was due to not believing they would be given one. 

And it’s worth noting that wages in Spain aren’t high compared to most of its neighbours. The average salary in Spain stood at €26,537 in 2020 , €9,528 (-26 percent) below the Eurozone average (€36,065), according to OECD data. 

All these points are contributing to the largest drop in purchasing power in Spain since 1984. 

READ ALSO: Will Spain soon no longer be the land of cheap alcohol?

Predictions from the Bank of Spain

According to estimates by the Bank of Spain inflation of could reach an average of 7.6 percent in 2022 compared to last year, while salaries are expected to grow just below four percent. The last time such a large difference was seen between the rise of the cost in products and salaries was back in 1984. Then, the Consumer Price Index (CPI) rose by 11.3 percent, while wages climbed by 7.8 percent, which shows a difference of 3.5 points.

This year, the forecasts indicate that the increase in the CPI will reach 9.8 percent, while the rise in salaries, as seen above will be just below 4 percent, which means a difference of at least 4.8 points.

The situation is especially worrying when the effects of the pandemic are taken into account. In 2021, Spaniards already lost a lot of purchasing power, since the difference between prices and salaries stood at 1.5 points last year.

This meant on average, salaries were worth around €400 less than the previous year. 

Can anything be done about it?

In March 2022, the Spanish workers’ unions already asked for an increase of at least five percent to make up for the rise in inflation.

However, the employers’ organisations the Spanish Confederation of Business Organizations (CEOE) and the Spanish Confederation of Small and Medium-sized Enterprises (CEPYME) rejected the petition, arguing that companies are still struggling to recover from the effects of the pandemic and cannot afford such as increase.

The International Monetary Fund (IMF) is also opposed to a sharp rise in wages, since it estimates that such a measure would only provoke an inflationary spiral that would aggravate the problem and prevent it from being controlled in the medium term. It estimates that if companies are forced to pay their workers more but earn the same, they will have to increase, in turn, the cost of what they sell, so a vicious circle would be entered that would make the situation worse.

Are Spaniards willing to ask for a pay rise?

Despite all this, a study by the international market research firm YouGov revealed just a month ago that Spanish workers are the least willing to ask for a pay rise out of a total of 18 developed countries surveyed.

Only around 20 percent of professionals in Spain think about asking for a pay rise and 74 percent say that they didn’t ask because they assumed there was no way their employer would agree.  

Among those who did consider asking for an increase, 37 percent said they wanted to ask for increases of between 2.1 and 5 percent, while 23.5 percent were going to ask their company for an increase of between 5.1 and 10 percent, and only 12 percent said they were going to ask for more than 10 percent.

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UKRAINE

Why meat prices in Spain will rise if the war in Ukraine continues

Rising cereal prices caused by the war in Ukraine are having a knock-on effect on meat prices in Spain, and things could get worse if the war continues.

Why meat prices in Spain will rise if the war in Ukraine continues

You might not have known that cereals are key to the meat industry, but you may have noticed meat and poultry prices rising on supermarket shelves. The feed eaten by animals, such as pigs, is usually made up of around 20 percent corn, and the rise in cereal prices is now affecting the rest of the food chain, and meat prices in Spain in particular.

Experts are now warning that prices could continue to rise if the war in Ukraine continues. This is because Russia is the world’s main producer of grain crops, a key ingredient in many animal feeds. A continuation of the war could therefore lead to further price increases that could indirectly affect all animal products such as ham, eggs, and milk.

READ MORE: Products that are more expensive than ever due to the war in Ukraine

Meat prices in Spain were rising even before the outbreak of war in Ukraine, and have climbed by 18 percent in the last year. 

The added economic shock of war, though, has caused meat prices to spike: beef prices, for example, have risen by almost 1 percent a week since March.

Jesús, a livestock owner, explained to Spanish outlet La Sexta that feeding his animals accounts for around 80 percent of the cost of production for his business, therefore, if cereal prices continue to climb, so will the price of his product.

This extra cost will then be passed on to consumers in supermarkets. “The [price of the] shopping cart is going up and it is logical, there is no other way to do it, products are going to be much more expensive,” he said.

The conflict-induced price spikes come amid tough economic times in Spain, not only because the country is still recovering from the COVID-19 pandemic, but also because Spaniards have been feeling the pinch of inflation in the last year. 

READ MORE: Products made more expensive than ever due to inflation

Last October, electricity bills were sixty-three percent higher than the previous year, according to statistics from Spain’s Instituto Nacional de Estadística (INE). Spain’s Consumer Price Index (CPI) ended 2021 at 6.5 percent – fractionally lower than forecast but still the highest level in almost thirty years.

According to a recent survey by the Bank of Spain, 60 percent of national companies plan to raise their prices in the coming year. 

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