Inflation in Spain

A short history of inflation in Spain

The Transition Inflation (1973 to 1977)

Spanish inflation peaked at 28.5% in the year to August 1977. The immediate cause was the oil shock of 1973, but the reason Spain absorbed it worse than most of western Europe was political. Franco died in November 1975, and the governments of the transition that followed were too weak to ask anyone to accept lower real wages while the shape of the new state was still being negotiated.

The Moncloa Pacts (1977)

It was resolved politically rather than technically. The pacts signed at the Moncloa Palace in October 1977, agreed by the government and every major party including the communists, combined wage restraint with tax reform and set a limit for pay rises based on expected rather than past inflation, which broke the automatic link between the two. Inflation fell through the 1980s, and Spain handed monetary policy to the European Central Bank on joining the euro in 1999.

Post-Covid Inflation (2021 to 2023)

In Spain, prices rose fastest in July 2022, at 10.8%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.