A miserable combination

Some decades ago in the United States the term "misery index" was coined for the sum of the rate of unemployment and that of inflation. The index rate with which the Spanish economy has now concluded 2010 is the highest since the beginning of the crisis, and shows the failure of recent economic policies. The absence of growth is aggravated by the most numerous contingent of Spaniards registered as unemployed since these statistics were first gathered, and by a disturbing rate of inflation that has nothing to do with the anemic condition of internal demand. The operators in the markets of public debt, on their part, still treat Spanish bonds with a high and abnormal risk premium.

The recent transition from very moderate rates of price variation, and even of shrinkage in the consumer price index (CPI), to year-on-year rises of nearly three percent, such as that announced for the year to December, is an adverse sign. Fears of deflation have now been supplanted by those derived from the coexistence of stagnation and inflation — the dreaded stagflation.

As was foreseeable, rises in indirect taxes (VAT, tobacco, etc.), and hikes in the price of fuels and of some public services, have been the main driving forces behind this 2.9-percent inflation figure. The first consequence of this upturn in prices is an additional erosion of household purchasing power, particularly at lower-income levels. The upsurge in the average shopping bill coincides with the freezing of upward salary adjustments for large numbers of workers subject to collective bargaining agreements, the elimination of the 426-euro subsidy for the long-term unemployed with no other income, and the continuing decline in the value of real estate properties, which constitute the principal personal assets of many Spaniards.

The indicator of inflation has been accompanied in its rise by that of registered unemployment in December. In spite of the 10,221-person drop in new registrations (the first reduction in December since the crisis began), the total figure is still the highest since these records began. The figures for registration in the Social Security system leave no room for favorable interpretation: December's 27,728 fewer contributors are one more link in a chain of six consecutive months of decline.

Few palliatives can compensate the most serious imbalance apparent in the Spanish economy. It is likely that the upcoming data of the Active Population Survey (EPA) will indicate an additional deterioration of the Spanish labor market at the end of 2010. It is likely, too, that the months to come will see further destruction of employment, further loss of income for those with the smallest capital cushion, and thus a fall in per capita income. The impoverishing combination of high unemployment rates and rising inflation does not favor the restoration of solvency in companies and households, these being the holders of the greatest volume of debt, and the ones that determine the health of the Spanish banking system. The only way to climb out of this situation is growth — an objective that economic policies have not managed to generate in Spain.