Press articles on economic information about the assessment of the situation of the Spanish economy often convey a vision of trompe l’oeil: they use certain expressions or focus on parts of the information or data that gives an image that tries to deceive the eye or rather, to the brain so that it thinks that everything is going well or that everything is going badly.
For example, the employment data from the active population survey of the INE, the EPA, and all the media highlight how employment is increasing, and that we beat the employment record. Firstly, this has to be normal if we grow, even if it is little, and secondly, it does not seem that all those who are answering the pollsters’ questions saying that they have worked in the last two hours are working a lot. The image of a strong increase in employment hides a moderation in hours worked.
The number of employed increased by 603,900 people in the quarter, 3%, the highest data in the series in many years. However, in the second quarter the effective hours worked with respect to the previous one during increased by 1.5%, compared to 1.8% in the previous quarter, and well below the average seasonal increase registered in the second quarters of the years before the pandemic ( media 2015-2019: 2.6%).
Then let’s be careful with the trompe l’oeil of employment growth: the hours worked are not going very well and the interpretative problems of the responses of the discontinuous permanent ones can help the survey to overestimate employment. In any case, we recognize that there is a higher level of employment than in 2019, but it is normal, it is not exceptional behavior.
Also with the figures for the evolution of GDP and its valuation we have to find a new trompe l’oeil. The economy grows much more than in Europe says the trompe l’oeil, but it is only now that the level of GDP is the same as that of December 2019. Two issues: grow much more than Europe when Germany is in recession and the area The stagnant euro is not difficult at all and also in the first quarters of 2022 and 2023, all the growth of the foreign sector (more exports of services, and less growth of imports) because private consumption and investment in Spain in that period not increased. In other words, the two variables that reflect the “feeling of an economy”, consumption and investment, continue in the second quarter of 2023 below the level of 2019. It is worth noting that finally in this second quarter it grows vigorously private consumption and investment and that Spain’s international position continues to improve with a very positive evolution of the current account balance. It is curious that with the weakness of consumption and investment, in Spain and throughout Europe we continue to talk about the injection of Next Generation European funds.
Having analyzed employment, the evolution of GDP and the main components of aggregate demand so that we understand where we are and that trompe l’oeil may be very successful, now let’s talk about inflation. As Tip and Coll would say, “it started.” If we take the average for June and July, it gives us an annualized rate of 3.6% and if we take the interannual average of the two months, 1.9% and 2.3% respectively, it gives us 2.1%. Here the trompe l’oeil is the other way around, we see figures that should leave us alone and tell us that underlying inflation is very high and that now inflation is now due to base effects. Be careful, analysts say this when in July the underlying did not increase compared to June, something very notable in the historical series. Here the trompe l’oeil is observed in the definition of base effects, and of the concept of core inflation as something that is resistant to going down. If we look closely at the trompe l’oeil, we can see the flaws and the inaccuracy of the analyses.
First, it is repeated in the press, (that the press emphasizes this is because the analysts they consult explain this to them, and not other things) that inflation is already increasing in July because the base effects disappear since energy prices increased to fall in July/September 2022, and now in 2023 in the same period as they are not going to drop because it implies that year-on-year inflation will rise due to base effects. DO NOT be confused, because energy cannot contribute positively in 2023 and having a zero or very low contribution is to stop being inflationary. Second, the fact that the year-on-year energy heading does not drop directly due to the base effect, does not mean that the drop in energy already seen will not continue contributing to reducing all the other CPI headings, which will flourish to fall much later given the delays due to transmission of the chain of costs to prices. And it is that inflation has been costly, demand is at 2019 levels.
The cost chain is easy to visualize. The wholesale prices of food go with a lag of 3 months with the prices of fertilizers and energy. The CPI for unprocessed foods goes with a lag or delay with wholesale prices of two, three months, finally processed foods present a lag of five months on unprocessed foods, which are a fundamental cost of processed foods, and eight on wholesale prices. , so this is when you will have to slow down. The same will happen with another item of the so-called underlying inflation: inflation for industrial goods was 4.6% in 2022 and did not reach its maximum until November 2022, after which the underlying inflation will continue to fall due to this concept. In addition, in recent months what we are seeing is already a negative growth in industrial production and consequently, views of the wholesale prices of industrial goods will not fall. If my analyzes are correct, this will lead to the CPI for industrial goods at the end of year to close to zero, and if not clearly below its historical averages.
So, as of today, what the trompe l’oeil fools us is that we do not see that all prices are moderating at the same speed that they rose and that if there are no new shocks what we will see is that the items that reached their maximums more late they are correcting, but later. In short, as August begins, go to the same restaurants as last year and compare the bills in your bank and card applications, and if not, forget about it and enjoy what it is about on vacation.
