The Bank of Spain dismisses the Government – inflation did not have an upturn only because of the guHernández de Cos points out that the trigger for the increase was the rapid reactivation of demand after the lowering of restrictions. Also, the starting point dates back to the middle of last year.
The Government defends that inflation was unleashed after Russia’s invasion of Ukraine, however, this is being denied. The Bank of Spain has indicated that the price increase began long before this movement. In fact, it indicates a specific date: in mid-2021, after the removal of the restrictions imposed during the pandemic.
Pablo Hernández de Cos, the head of the Bank of Spain, explains the causes behind this increase:
The rapid reactivation of demand after the elimination of the restrictions that were imposed to try to contain the pandemic. Production was limited for a long time, and restarting the entire process is extremely expensive.
The rebound in the prices of raw materials in international markets. It is a factor that has affected the economy of all countries, and it is too difficult to combat.
The rise in energy prices. This as a consequence of the war and the lower gas supply, but also due to the lack of maintenance of the infrastructure.
Since mid-2021, inflation in the Eurozone has remained clearly bullish, in addition to having intensified in recent months. In addition, it has been spreading to core inflation to a lesser extent.
This reality contrasts radically with what the President of the Government, Pedro Sánchez, and his economic ministers defend. In this version, it is said that prices skyrocketed exclusively because of the war in Ukraine: the war itself and Putin’s preparations were a phenomenon that could not be foreseen or taken preventive action.
It has even taken social measures based on the energy crisis. However, it seems to be insufficient if we see that the cost of energy is just one of the points in the general panorama, and that it is related to something more complex such as production chains.
Which version is closest to reality?
The truth is that since the beginning of the pandemic, measures were taken with the fear that they could affect the national economy. However, we began to see the most serious consequences clearly just after the restrictions were lifted, in search of its reactivation and recovery.
The current geopolitical and economic situation has left the continent in a bad position. The energy supply has decreased radically, and it is a factor for which it was impossible to take preventive measures.
As a consequence, the raw materials and the reactivation of production have had much higher costs than those that had been stipulated.
Therefore, we cannot say that the inflation is due solely to the war in Ukraine. In fact, since before the delicate situation, there had already been large increases in prices, especially in basic necessities.
The bottlenecks
The revival of the economy worked quite well, but the supply is seriously lagging compared to the demand for products and services. As a consequence, global production chains have been overloaded, dragging behind the delays of two years ago.
This point in particular is going to take a long time to recover. Even at the consumer level, it is not as simple as obtaining credit online if you want to purchase a product that is in high demand. This is just one of the consequences found in the last link of the distribution chain.
