This week, I heard an analyst explain that food inflation has been higher than it seems. The official figure, according to the INE (National Institute of Statistics and Census), was 2.4%. But if we eliminate the effect of olive oil—which has dropped more than 40% in the last year—the shopping basket would actually have increased by more than 4.5%. This is no small fact.
After the inflationary peak of 2022, with rates approaching 10%, inflation seems to have returned to more manageable levels. But economists knew: it wouldn't return to zero. We'll be stuck with structural inflation of 2%, 3%, or even 4%. And this has consequences that aren't always immediately apparent, but which weigh heavily over time.
Einstein said that the two most powerful forces in the world were the theory of relativity and compound interest. The latter applies perfectly to inflation. Because inflation accumulates year after year. Today it rises 3%, tomorrow that 3% is applied to what has already risen. And so, what seems like a slight annual adjustment becomes a long-term economic change.
Let's look at real-life examples. In 2000, the minimum wage in Spain was €424.8 per month. Today, it's €1,134. In 25 years, it has increased by 167%, equivalent to an average compound inflation rate of 4.1% per year. In that same period, an apartment that cost €200,000 now sells for more than €450,000. An increase of 125%, equivalent to an average annual increase of 3.3%. And these are real figures, not theoretical ones.
The phenomenon is clear: the economy is gradually raising its nominal value, year after year. And when we look back, everything seems cheaper. "A loaf of bread used to cost a peseta," the old folks say. And sometimes you laugh, until you realize you're starting to say similar things.
I believe we are immersed in a period of low but persistent structural inflation. And when 15 more years pass, and we look back 30 years, we will see that everything costs twice as much. We will probably continue to live the same. Average purchasing power will remain the same. But the nominal level of the economy will be different.
It's a silent change. Slow. But unstoppable. And understanding it is key for those who make long-term decisions: companies, investors, citizens. Because today's money isn't worth the same as tomorrow's. And because if economic history teaches us anything, it's that profound changes rarely happen with noise.
We've been at it for a few years now, and it's only going to continue. In nominal, but not real, terms, the economy is going to climb a huge mountain.
