Wars also have economic repercussions in non-belligerent countries. Looking back a long way, one can remember the saying of Spanish farmers asking for “water, sun and war in Sebastopol”. These were the three factors that had to come together for the rain to germinate the cereal, the sun to ripen it, and the war in the Crimea in 1853 to trigger the demand for Spanish wheat.
Somewhat closer in time, in the First World War, Spanish neutrality injected an economic boost due to the disappearance of competition coupled with an increase in demand; and if not, tell the Catalan textile industry.
Even now, with the war in Ukraine, although the European Union and Spain do not directly participate in the conflict, they do apply sanctions to Russia, and logically they also suffer the corresponding retaliation, in addition to the general effects derived from the energy market.
The war is responsible for the fact that the inflation caused by the opening of the barriers after passing the hardest stage of the covid did not have the temporary nature that was attributed to it, but rather suffered an upward acceleration that brought prices to levels not seen in decades, putting the European and Spanish economy in check.
“More than the war, it has been the sanctions,” says Antón Costas, president of the Economic and Social Council, who cites the famous “water, sun and war in Sebastopol” as a reminder of the economic impact of conflicts on third parties. “The war itself, the closure of Russia and the outflow of food caused the sharp increase in prices,” says Costas, who considers that without the sanctions, such a high increase in energy prices would not have occurred.
When Russian tanks entered Ukrainian territory in an offensive that had very little success, apart from the casualties and damage, and its impact on geostrategy, the shock wave reached the economies almost immediately. First it was the increase in energy prices, with its painful transfer to the bills of companies and individuals; and later, also the shopping basket, with the effects that we are still suffering from some food that in January rose again above 15%.
Inflation is usually described as the tax of the poor, since it supposes an equal rise in prices for the whole of society, with which the lowest incomes are the most bitten in percentage terms in their expenses; and the verification of the theory comes with the electricity bill or the visit to the supermarket.
“The war is not the only one responsible, inflation was already rising before. As soon as the economy opened up, after the pandemic, it began to increase, and in the summer the underlying one skyrocketed. The war initially accentuated the rise in energy products, but in recent months it has been fading. However, the rise has been transferred to food products ”, explains María Jesús Fernández, from Funcas.
Long before the invasion of Ukraine, prices were unexpectedly rising on the back of strong demand that stirred up, and largely collapsed, supply chains that had been kept to a minimum during the pandemic. Those were the months in which all the economic authorities repeated the mantra that inflation was a temporary phenomenon and that as soon as the bottlenecks were eliminated it would moderate. In this way, December 2021 was reached with inflation as high as 6.5%.
The theory of the next moderation of inflation could not be verified because when the war broke out, the game board was broken. That new element changed everything, from the outset triggering energy prices. And later, “it gave way to another shock with the effects of the war on food. Russia and Ukraine are exporters of cereals and biofuels, such as corn and sugar cane,” says Javier Ferri, from Fedea.
It is when the EU blockade of Russian products and the blockade by Moscow of products leaving Ukrainian ports became general. Restrictions on Ukraine’s grain exports have also affected feed and fertilizer prices.
In short, an almost perfect storm that unfolds on three tracks. On the one hand, inflation that skyrocketed with the war, peaking in July, when it was close to 11%, to later moderate to 5.9% in January. Accompanying him at another rate, the underlying, which does not take into account energy or fresh food, which started its rise later but is still on the rise, and has already reached 7.5%. And in the third track are food, which has been for four consecutive months, since October of last year, with inflation above 15%.
At the beginning of the year, the Government changed its fiscal strategy with inflation. It abolished the 20 cent aid for fuels, an effective measure to contain prices, but regressive and very expensive; and lowered VAT reductions on some products.
Reviewing the set of fiscal measures applied by the government to moderate prices, the Bank of Spain concluded this week that the VAT reductions have benefited low-income households while low-income households have benefited more from the fuel discount. high rent. Specifically, the three measures – a reduction in VAT on electricity, gas and food, currently in force, and aid for fuel, which was eliminated at the beginning of this year – add up to savings of 2,100 million euros for 30% of households with the lowest level of income, while the savings for the 30% of households with the highest level of income is 3,700 million. The Bank of Spain’s proposal is to replace these measures with a one-off income transfer of 860 euros, focused on the 30% of households with the lowest income.
One year after the outbreak of the war, inflation is moderating, although it remains at 5.9%, while underlying inflation and food are the big alarms of the moment. The underlying (7.5%) worries economists more. That of food (15.4%) punishes low incomes the most and is the one that has moved the Government to lower the VAT on basic products.
