Spain Inflation Trends: Factors, Resistance, and Labor Market Impact
General Trends of Inflation in Spain
Several factors explain the significant reduction in price growth over the last decade.
Three key circumstances:
- The intense use of new technologies in production processes.
- Integration of economies in world markets.
- Liberalization and deregulation of many services.
Our inflation rate near the end of 2002 was around 3.5%, a level far removed from the corresponding 10% a decade ago and much farther from the 20% which Spanish inflation reached in the mid-seventies.
However, that downward trend has been accompanied by two features that still distinguish Spanish inflation:
A More Intense Inflation Compared to Neighboring Countries
Despite the sharp drop in the Spanish inflation rate over the past years, it has remained above the EU average by around 1 percentage point. Maintaining domestic demand, accelerated production compared to a range less flexible than our European neighbors, supports inflation. Higher import prices are another intermittent threat to Spanish inflation.
A Strong Resistance to Inflation Reduction
Besides being more intense, Spanish inflation seems to have found a lower limit of around 3% or 4% that is difficult to maintain over time. From this level, the response of inflation to monetary policy or other anti-inflation measures is very weak, so that even in low-cycle phases and with lower pressure of demand, the inflation rate is not reduced substantially and permanently. In fact, in the Spanish economy, there is still talk of a dual model of inflation resulting from changes in production structure in recent decades because of our international market entry.
In recent years, the policy of deregulation has affected many service activities, but inflation in this sector still doubled the rate of the industrial sector, which demonstrates the need to keep in line with policies of liberalization and competition to cushion the tendency of certain businesses to pass any higher costs on to prices as a way to maintain profits. For its part, labor market flexibility has resulted in greater control of the growth of labor costs with a consequent positive impact on inflation control.
Labor Market Definitions
Inactive Population (IP)
Persons aged 16 or over not willing to work, that is, not actively seeking work at the time of the poll and have not searched in the previous week. Among the groups of inactive people, it is peculiar to consider those discouraged who “were willing to work but give up actively seeking a job due to the limited possibilities of finding one.”
Potential Assets
Those available for work but not seeking work due to illness, family reasons, no need to work, studying, or retirement are called potential assets that could be part of the job offer when their circumstances change.
Labor Force (LF)
Persons aged 16 and over who are seeking employment or actively by registration in the public employment offices in the 4 weeks preceding the time of the survey. From the perspective of the labor market, the labor force equals the labor supply.
Employed Population (E)
That part of the active population that worked in the survey week for at least 1 hour. From the perspective of labor work, the employed population is the demand for labor.
Differentiation:
- Employees in the strict sense: Those who work full time or part time (in the latter case, less than 35 hours).
- Underemployed: Employees who worked fewer hours per week than corresponds to full-time and are willing to work more hours in the two weeks following the reference.
Workforce (LF) = Job Offer (JO)
Employed (E) = Demand for Labor (DL)