The governor of the Bank of Spain, Pablo Hernández de Cos, has again warned the social agents of the urgency of agreeing on an income pact that allows them to face inflation, although he has been opposed to this contemplating the rise in wages according to the Consumer Price Index (CPI), and has warned of the effects that this decision would unleash. “The simultaneous rise in price and wage levels in the current context would entail a loss of foreign competitiveness against the countries with which we share currency,” declared the head of the supervisory body, during his speech at an event held on Tuesday in the Faculty of Economic and Business Sciences of the University of Seville.
It is not that the Bank of Spain is against workers and employers agreeing on a roadmap that regulates collective bargaining in the coming years, but rather that it does not lead to a recovery of purchasing power in line with inflation, as the unions claim (and reject the bosses outright). “The costs must be distributed among all the agents involved”, Hernández de Cos pointed out, although assuming for all of them the impossibility of equating the price growth curve with that of wages in the immediate future. “In the current context, of a sharp rise in the prices of energy and some other raw materials, it is essential to avoid the appearance of second-round effects of inflation, in particular through a spiral of prices and wages. Avoiding this feedback is not easy nor, above all, rewarding in the short term. It requires agreeing on an income pact between workers and employers in which everyone will end up winning in the medium term, but in which everyone will have to assume a loss in the short term”, the governor has indicated.
Unions and employers have reached an impasse within the renewal of the Agreement for Employment and Collective Bargaining (AENC), expired since 2020, and the fundamental basis of the income pact promoted by the Government. The annual review clauses are a red line for the centrals, which businessmen are not willing to accept, and a demand that for the Bank of Spain would be ineffective in the long term. “It would be desirable to avoid formulas for automatically indexing wages to past inflation or safeguard clauses”, assured Hernández de Cos, since the objective of this agreement must be to “reduce the risk of triggering a feedback between wage increases and price increases. Similarly, Hernández de Cos has positioned himself against the “widespread use of automatic indexation clauses in public spending items.”
Regarding how collective bargaining is being resolved without the mattress of the income agreement, Hernández de Cos has defended that the distribution of costs between companies and workers “is already taking place in a tacit way”, and, appealing to the results of the Bank of Spain Survey on business activity (EBAE) for the first quarter of 2022, has argued that the effects of inflation are not being transferred to prices by companies. “Nearly 82% of the companies experienced an increase in their costs in that period as a result of the increase in the cost of their intermediate consumption, while only slightly more than 40% increased the sale price of their products”, he recalled.
Appealing to the differences in productivity and activity that exist between companies and sectors, Hernández de Cos has also postulated in favor of a catalog of measures to confront inflation that is more selective than generalized. “An eventual income agreement must avoid adopting measures of excessively general application, which would be too rigid for some segments of agents”, he has suggested.
He knows in depth all the sides of the coin.
Despite being against the flag raised by the unions, the head of the supervisory body has also marked what should be the behavior of the companies during the next cycle, so that this pact has the desired effect. “These guidelines on wage developments should be accompanied by explicit commitments to moderate business margins. Some mechanism would have to be articulated so that this moderation of margins is verifiable ”, he has influenced.
Aware of the stalemate in the AENC talks, the Bank of Spain has joined the chorus of voices that recommend that the variable to be taken into account when setting a possible upward path for salaries is that of underlying inflation, which excludes disturbances of energy and unprocessed food, and is therefore less volatile. “The evolution of our economy in the coming years will largely depend on our ability to meet these difficult commitments,” he concluded.