Inflation is eating away at the incomes of households, who spend more than they earn and turn to savings, consumer loans and family aid to compensate for the loss of purchasing power. While wage earners in Spain earn an average of 19,817 euros per year, their expenses are 22,598 euros, warns IESE professor José Luis Nueno in the book Todo es terrible, pero yo estoy bien, published by Aecoc, the Association of Consumer Goods Companies.
After analyzing the behavior of 250,000 consumers and 190 million purchases between January 2022 and April 2023 through a Fintonic and Intent HQ database, Nueno calculates that salaried employees end the year with a negative balance of 2,781 euros, as published by Aecoc yesterday.
This differential between income and expenses can mark consumption in the second half of the year, given that, according to this analysis, "wages grow more slowly than inflation". In May, unions and employers agreed on a general wage increase of 10% between 2023 and 2025 in the collective agreements.
The Bank of Spain warned last month of this gradual loss of purchasing power that families have suffered due to the increase in prices. Although the nominal gross disposable income of households was 6.8% higher in 2022 than in 2020, inflation has caused a cumulative loss of purchasing power of 4.5% in this period, "something that has limited the ability of Spanish families to save and spend", says the organization in its latest report on the financial situation.
The ability to spend and consume, therefore, could be reduced in the final stretch of the year. The book edited by Aecoc emphasizes that one of the key factors will be the evolution of savings. “During the pandemic, the savings rate rose by 21% and is now around 9%. This stored savings is running out and it's a problem", emphasizes Nueno. Families are running out of resources to meet expenses.
The loss of purchasing power is particularly noticeable in the lowest incomes, 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%, which contrasts with 9.7% in the case of 30% of households with the highest income, highlights the aforementioned report from the Bank of Spain.
José Luis Nueno's study also recalls that, excluding the inflation effect, most consumer categories fall in purchase volume, "and this affects the margins of manufacturers and retailers". A recent survey by the same Aecoc also warns that 38.9% of large distribution companies anticipate a fall in their sales volumes of 5% in the final phase of the year, 27.8% believe their sales will stagnate and another 33.3% expect to grow. As for manufacturers, 56% think that their sales volume will decrease.
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 this allows younger people who join the labor market to have income to spend. This will boost different categories of small spending, such as catering, low-cost travel or fashion", he says.
