We grow more, but with too much inflation

The growth trajectory of the Spanish economy is positive. On a macroeconomic scale, it is among the most dynamic developed countries. The problem arises when we zoom in with the microscope and detect that there is a worse distribution of the cake because the population is growing faster than the wealth. Hence the emergence of slogans such as inclusive growth, which is used, for example, by the government presided over by Salvador Illa.

However, according to the Bank of Spain's projections, one of the risks is the evolution of the general price level, currently standing at close to 5% (4.9%, specifically, in September). It is true that core inflation, which excludes energy and unprocessed food prices and is therefore the most structural, is lower, at 3.1%, but it is also trending upwards and far from the European Central Bank's (ECB) 2% target.

With this data, and taking into account that the tensions in the Persian Gulf that are causing the rise in oil prices are unlikely to disappear overnight, the Bank of Spain has increased its inflation forecasts. It places them at 3.9% in 2026, almost double the ECB's target and three tenths of a percentage point above its previous estimates. But the point is that the trend will not be one of much moderation, because the forecast for 2027 is 3.7%, only two tenths of a percentage point less than in 2026, but 1.1 percentage points more than in the monetary body's previous projection.

The main factor so far in the rising cost of living is energy prices. For this reason, the Spanish government has extended the package of measures in response to the crisis in the Middle East until the end of the year. This has helped contain inflation through energy tax cuts and direct aid to the most affected sectors, but it has also pushed up the public deficit. The institution led by José Luis Escrivá has made an upward revision of the public deficit, to 2.6% of GDP for 2026.

Although inflation is closely linked to the rising cost of energy, the danger is that the price escalation will spread to the rest of the economy. And there is another problem: with inflation that could reach an average of 4%, wages are growing at a slower pace. And the forecast is that this will continue. The average wage increase in revised collective agreements would stand at 3.2%. The same applies to those revised in 2026, with average increases of 2.9%. On the other hand, in new agreements signed up to August 2026, the upward wage revision is 3.7%. This is the so-called price-wage spiral.

Although the very low levels of debt among families and businesses reveal a healthier economy, they also have another side. They point to a possible slowdown in consumption, one of the engines of growth, and in investment, the other lever. However, in any case, the Bank of Spain still points to growth in economic activity in the country and a reduction in unemployment. The evolution of inflation, which soared to 3.8% in the eurozone in September, points to new interest rate hikes by the ECB. The rising cost of money is usually the ideal recipe for controlling rising prices, but the ECB must avoid letting the credit reduction it causes cool growth too much.