From the gas station to the mortgage: four months of war punish citizens' pockets

BarcelonaThe war in the Middle East that began on February 28 with attacks by the United States and Israel on Iran has, obviously, had an economic impact. After four months, and with the agreement between the United States and Iran, it is difficult to quantify the total cost of the war in economic terms. But what is clear is that the impact has fallen directly on citizens' pockets and has weakened economic growth in many areas of the world, especially in Asia-Pacific, with greater dependence on Gulf oil.

Despite this, this week the Bank of Spain has said that the major data for the first half of the year indicate that the Spanish economy has resisted the impact of the war in the Middle East without much damage. Both job creation, investment, and tourism spending have shown a solidity that allows for maintaining or even improving forecasts for Spain. The Bank of Spain's forecast report maintains 2.3% as the forecast for economic growth for this 2026 and 1.7% for next year.

These are the same forecasts that the institution made in March, but with a modification of the economic engines: a slowdown in domestic demand (household consumption and investment), compensated, however, by a boost in tourism. The Director General of Economy of the Bank of Spain, David López Salido, said: “The Spanish economy has a favorable growth profile” for the coming quarters.

There are some clear data that go directly against families' pockets: the rising cost of energy, the increase in inflation, the lack of fertilizers that has pushed up the price of food and, consequently, the rise in interest rates in the euro area which has increased the installments of variable-rate mortgages and credit in general. In fact, the Bank of Spain already points to inflation as the main problem and places it at 3.6%, well above the objectives of a price increase around 2%.

López Salido warned of the inflation difference between Spain and the rest of the euro countries: "We are concerned that a gap will open in core inflation [that which does not take into account the most volatile elements, such as energy and food], because the effect of the energy shock is transferred more to Spanish core inflation than to that of the rest of Europe. And this is accentuated by enormous demand growth due to tourism and leisure". In fact, forecasts indicate that inflation in Spain this year will be 6 tenths higher than the euro area average.

The World Economic Forum (which organizes the Davos meeting every year) defined the Strait of Hormuz as the jugular of the world. Because its closure affects not only oil and energy, but also many other raw materialshe didn't raise them, when it would be most orthodox in a moment of 4.2% inflationDirect impacts

The war has directly impacted citizens' pockets. Fuel prices soared to 1.81 euros per litre for gasoline and 1.94 euros for diesel in the first month of the conflict. The rise in fuel prices, moreover, affected practically all products. Spain, however, decided to apply a tax cut to return fuel prices to pre-war levels. The impact, therefore, shifted from citizens' pockets to public coffers. The Spanish government itself, which is scheduled to approve a new aid decree on June 29, estimated the cost of these measures at 5 billion euros.

The other major impact on citizens' pockets (and therefore on consumption, but also on business investment) is the rise in interest rates. In February, inflation in Spain was 2.3%, a rate very close to the European Central Bank's (ECB) medium-term objective of keeping it around 2%. In contrast, after three months of war, in May, it had already risen to 3.2%, one point higher than in February. The trend is the same across Europe and beyond. In the United States, inflation in May was 4.2%.

The European Central Bank (ECB), in its June council meeting, decided to make a move to try to curb the rise in inflation. The financial institution decided to raise interest rates by 0.25 percentage points, to 2.25%. In the case of the United States, the Federal Reserve's (Fed) decision was not as clear, as in its last meeting it decided to keep interest rates. But the fact is that, fundamentally, the decision is anti-inflationary. President Donald Trump had clashed with the previous Fed chairman, Jerome Powell, because he did not want to lower rates. The new chairman, who took office with Trump's endorsement, Kevin Warsh, decided to keep rates, not raise them, when it would be most orthodox in a time of 4.2% inflation.

The practical consequence of all this is the rise of Euribor and, therefore, the increase in the cost of variable-rate mortgages. On February 27, the day before the hostilities began, the 12-month Euribor stood at 2.222%. This Friday it was at 2.748%. But during the months of war, on some days it reached over 3%. And in May, it closed at 2.8%; for example, the monthly payment for an average mortgage of 174,132 euros referenced to Euribor, which was 833.11 euros, rose to 900.39 euros, which means 67.28 euros more each month or 807.36 euros more per year.