Although the job market situation is still upbeat, the situation is more complicated in terms of inflation. In March, the harmonised index of consumer prices (HICP) nearly reached the threshold of 10% y/y, at 9.7% y/y, before easing to 8.5% y/y in May. Inflation is likely to ease more rapidly in Q4 2022, even though it should remain high (above 3%) through the end of H1 2023. On 15th June a price cap on natural gas was introduced and will help shield households from higher energy prices (+34.2% y/y in May). Even so, consumer price inflation continues to rise in other spending categories, notably food and non-alcoholic beverages (+11% y/y), household appliances (+5.9%) and food and restaurant services (+6.3%). Producer prices continued to soar last spring (+45.1% y/y in April). Although partially absorbed by corporate margins, this increase will also be carried over to sales and consumer prices.
Moderate wage increases
Although wages increased significantly in Q1 (+4.3% y/y according to INE), a price-wage spiral does not really seem to have materialised yet. Wage increases are mainly due to the knock-on effect of the increase in the minimum interprofessional wage (MIW) on the lower end the pay grid. The MIW was raised by 3.6% to EUR 1,000 in January. With the exception of three sectors (energy, information & communications, and finance & insurance), wage increases were reported in all sectors, and were especially large in hotel services. The average base wage in this sector (EUR 1,120.16 a month in Q1 2022) is close to the WIM, and wages rose by two thirds (68.4%) compared to Q1 2021. For the moment, higher wages are mainly due to government measures rather than corporate decisions, even though in certain sectors, like hotel services, labour shortages are also helping to drive up wages. Moreover, only a quarter of workers are covered by an inflation clause that would allow them to fully or partially adjust their wages to inflation.[1] Under this environment, the government could strengthen its support measures in favour of households and companies (EUR 17 bn so far, excluding price caps[2]). Reduced taxes on energy products, which currently expire in July, will probably be extended. The introduction of a windfall tax on energy providers is also being explored, similar to the measure implemented in Italy.
