In recent times, gas has been the unexpected protagonist of the Spanish economy, due to its role as a propellant of inflation that has spread through the productive apparatus, slowing down the recovery. Now everything indicates that oil could be taking over as a killjoy.
Two factors converge in the direction of a sharp increase in the price of black gold in the coming months. On the demand side, China has begun the lack of confidence in the areas affected by virus outbreaks, a prelude to a rebound in activity in the world’s second largest economy, with a huge weight in world imports of raw materials.
Conversely, the restrictions on Russian oil imports recently announced by Brussels will lead to a drastic cut in the available supply, at least in the short term: according to experts from the International Energy Agency, a good part of the supply of the Eurasian giant will not be able to be redirected to other destinations, aggravating the global shortage. On the other hand, Saudi Arabia and other producing countries are not very enthusiastic about increasing their extraction to cover the deficit of Eurasian crude (they have announced an additional pumping that represents less than 10% of the Russian offer). They wonder why they would do it, when the same countries that ask for an effort have committed themselves to ending the use of hydrocarbons. It is a fact that investments have been massively diverted towards renewable energies.
Meanwhile, discounting the ups and downs that characterize such a volatile market, a barrel of Brent is close to 120 dollars, 53% more than at the beginning of the year. And futures markets are headed higher. If the price reached 140 dollars, in line with some of the forecasts (others are even more alarmist), the IPC would rise one more point. Thus, the rise in oil prices would nullify the efforts made to contain inflation, such as the subsidy for hydrocarbons or the mechanism for limiting the price of gas entering the electricity market (a measure that, on the other hand, and incomprehensibly, takes time to enter into force).
Without a doubt, our economy can withstand the oil shock in the coming months. This is evidenced by the good data on affiliation to social security for the month of May, as well as the current indicators, which point to an improvement both in industry thanks to the export boom and in services (the PMIs show an improvement after the turbulence generated by the invasion of Ukraine). The tourist season appears under favorable auspices and some households still have a savings cushion to maintain consumption despite the loss of purchasing power.
He knows in depth all the sides of the coin.
But a rebound in energy prices will add pressure to a core CPI that is already close to 5%, and just slightly less in the eurozone. Without surprises, the ECB is preparing to cease its purchases of debt, before increasing its interest rates – with a first increase next month followed by others, until inflation is brought down. The shift is already reflected in the cost of money, making mortgages and other loans more expensive.
In addition, a technical recession in Germany and other economies more affected than ours by the scarcity of hydrocarbons is not ruled out from the fall, when the tightening of sanctions on Russia fully enters into force.
Finally, the maintenance of strong energy inflation reduces the room for negotiation to share the cost in a balanced manner. At the moment wages evolve moderately, both in Spain (with increases agreed until April close to 2.5%) and in Germany (4%), France (3%) and Italy (close to 1%). But watch out for the return of the holidays. Sanctions increase the risk of chronic inflation, but we hope that they will help resolve the war.
According to data released this week, the number of employment contracts registered in May was 95,300 higher than that registered a year earlier, with an increase in permanent contracts of 574,300 and a decrease in temporary contracts of 479,000. Among the modalities of indefinite contracts, the one that grew the most was that of discontinuous permanent contracts (10.8%), so that the number of contracts covered by this modality has multiplied by 13 in the last year. The other indefinite hiring formulas also gain ground, but less: 1.3% in May, and 243% in one year.
Raymond Torres he is director of the situation at Funcas. On Twitter: @RaymondTorres_
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