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MONEY

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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MONEY

How much can you save on public transport in Spain with the new state discount?

Spain's government recently confirmed it will slash the cost of public transport tickets to help people deal with rising inflation. Here's how much bus, train and metro tickets are likely to cost you in some of Spain's main cities from September 2022.

How much can you save on public transport in Spain with the new state discount?

Spain’s annual inflation rate reached 10.2 percent in June, the highest since April 1985, according to a statement released by the Spanish authorities on Wednesday. 

To help its citizens and residents save money and make ends meet at a time of rising inflation, the Spanish government recently announced a 50 percent discount on the cost of multi-journey tickets on RENFE services such as Cercanías, Media Distancia and Avant. 

A 30 percent discount will also be applied to the cost of passes and multi-trip tickets for regional and local transport services, including city metro, bus and tram systems, bought between September 1st and December 31st 2022.

So far it hasn’t been revealed exactly how the reduction will work and it is up to each region to decide on how they want to implement it.

For example, they could just reduce the cost of the tickets or ask people to apply for money back on the tickets they’ve bought over the four months.

Some cities and regional authorities have also said that they will reduce the cost of transport tickets further by applying an extra 20 percent discount on top of the central government’s 30 percent, taking it to 50 percent.

In order to finance the new measure, the government has confirmed that €221 million will be allocated to regional governments and transport authorities across the country. 

Here are the savings you’ll be able to make on transport tickets in Spain’s major cities:

Barcelona

The regional government of Catalonia has announced that it will aim to add further deductions by applying a total 50 percent discount for services run by the Autoritat del Transport Metropolità (ATM ), which includes Barcelona city and the metropolitan area.  

The mobility councillor for Barcelona City Council Laia Bonet said ATM is “aiming to guarantee a 50 percent reduction”. 

This means that if the 50 percent discount is applied, the T-Usual ticket, which allows you unlimited journeys over 30 days, will go from costing €40 to just €20 and the T-Casual ticket which gives you 10 journeys will go from €11.35 to €5.67.  

Madrid

Madrid has not yet confirmed if it will apply more than the 30 percent discount announced by Pedro Sánchez’s government, as public transport tickets there are already subsidised by 60 percent. Authorities in the capital have also said that they still don’t know how much of the €221 million they will receive.

If the national government’s 30 percent reduction is applied, the standard 30-day metro season ticket for zone A will be reduced from €54.60 to €38.22 and the regional pass all the way to Toledo will drop from €131.60 to €92.12.

Seville

Seville City Council also hasn’t yet decided if they will apply a 50 percent discount on transport passes to stick with the 30 percent. However, IU-Podemos has requested that they apply the 50 percent reduction. 

Currently, TUSSAM, the body responsible for urban transport in Seville, has set the price for a 30-day bus pass at €35.50.

With a 30 percent deduction, this will drop to €24.71 and with a 50 percent discount, the cost will go down to €17.65.

With regards to the Seville metro system, a 30-day Bono Plus 45 ticket which allows you to make 45 journeys of a similar type, costs between €30 and €50, depending on how many zones you jump through.

With the 30 percent reduction, a simple pass without jumping through zones will cost €21, while the one-jump pass will cost €29.40.

Valencia

As of yet, there is no concrete information on the reductions that will be applied to transport tickets in Valencia city, but based on the national government’s discount a 30-day SUMA ticket pass for the metro, bus and local train services for zones A and B will go from €35 down to €24.50.  

Málaga

Like Seville, no decision has been made yet in Malaga as to any further reductions other than the government’s 30 percent. Based on this, an unlimited monthly bus pass will be reduced from €39.95 to €27.96.

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