Inflation is eating away at household incomes, which are spending more than they earn and drawing on savings, consumer loans and family assistance to make up for the loss of purchasing power. Thus, while wage earners in Spain earn an average of 19,817 euros a year, their expenses amount to 22,598 euros, warns IESE professor José Luis Nueno in the book Everything is terrible, but I’m fine, published by Aecoc, the Association of Consumer Goods Companies.
After analyzing the behavior of 250,000 consumers and 190 million purchase acts between January 2022 and April 2023 through a Fintonic and Intent HQ database, Nueno estimates that wage earners end the year with a negative balance of 2,781 euros. , as published by Aecoc this Tuesday.
This differential between income and expenses may mark consumption in the second half of the year, since, according to this analysis, “wages grow slower than inflation.” In May, unions and employers agreed to a general wage increase of 10% between 2023 and 2025 in collective agreements.
The Bank of Spain warned last month of this gradual loss of purchasing power that households have suffered due to the increase in prices. Despite the fact that the nominal gross disposable income of households has been 6.8% higher in 2022 than in 2020, inflation has caused an accumulated loss of purchasing power of 4.5% in that period, “what that has limited the saving and spending capacity of Spanish families”, says the agency in its latest financial situation report.
The spending capacity and consumption, therefore, could be reduced in the final stretch of the year. The book published by Aecoc underlines that one of the key factors will be in the evolution of savings. “During the pandemic, the savings rate rose to 21% and now it is over 9%. This dammed-up savings is running out and it is a problem”, Nueno points out. The resources to face the expenses are running out for part of the families.
The loss of purchasing power is especially noticeable in the lowest income groups, which are the ones that cut their consumption the most (-3.8%). In fact, between August 2021 and September 2022, the inflation experienced by the 30% of households with the lowest income would have been approximately 11.3%, compared to 9.7% in the case of the 30% of households with higher income, highlights the aforementioned Bank of Spain report.
José Luis Nueno’s study also recalls that, removing the inflation effect, most consumer categories fall in purchase volume, “and that affects the margins of manufacturers and retailers.” A recent survey by Aecoc itself also warns that 38.9% of large-scale distribution companies anticipate a drop in their sales volumes of 5% in the final phase of the year, 27.8% believe that their sales they will stagnate and another 33.3% expect to grow. As for manufacturers, 56% expect to decrease their sales volume.
On the positive side, Nueno puts the evolution of the labor market, which can have a positive effect on consumption. “Jobs will continue to be created, and that allows younger people and those entering the labor market to have income with which to spend. This will boost different categories of small spending, such as restaurants, low cost travel or fashion ”, he concludes.
